Company Quick10K Filing
Houlihan Lokey
Price44.65 EPS2
Shares66 P/E18
MCap2,951 P/FCF20
Net Debt-188 EBIT227
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-12-31 Filed 2021-02-04
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HLI 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Background
Note 2 - Summary of Significant Accounting Policies
Note 3 - Revenue Recognition
Note 4 - Related Party Transactions
Note 5 - Fair Value Measurements
Note 6 - Investment Securities
Note 7 - Allowance for Credit Losses
Note 8 - Property and Equipment
Note 9 - Goodwill and Other Intangible Assets
Note 10 - Loans Payable
Note 11 - Accumulated Other Comprehensive (Loss)
Note 12 - Income Taxes
Note 13 - Earnings per Share
Note 14 - Employee Benefit Plans
Note 15 - Stockholders' Equity
Note 16 - Leases
Note 17 - Commitments and Contingencies
Note 18 - Segment and Geographical Information
Note 19 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 q3fy21-ex311.htm
EX-31.2 q3fy21-ex312.htm
EX-32.1 q3fy21-ex321.htm
EX-32.2 q3fy21-ex322.htm

Houlihan Lokey Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin


Washington, D.C. 20549
For the quarterly period ended December 31, 2020
For the transition period from __________ to ______________
Commission File Number: 001-37537
Houlihan Lokey, Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
10250 Constellation Blvd.
5th Floor
Los Angeles, California 90067
(Address of principal executive offices) (Zip Code)
(310) 788-5200
(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 ClassTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.001HLINew 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, 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
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 2, 2021, the registrant had 51,518,175 shares of Class A common stock, $0.001 par value per share, and 17,432,975 shares of Class B common stock, $0.001 par value per share, outstanding.


Item 1.    Financial Statements
(In thousands, except share data and par value)December 31, 2020March 31, 2020
Cash and cash equivalents$633,659 $380,373 
Restricted cash373 373 
Investment securities234,576 135,389 
Accounts receivable, net of allowance for credit losses of $7,949 and $5,587, respectively
78,969 80,912 
Unbilled work in process, net of allowance for credit losses of $1,853 and $1,302, respectively
53,074 39,821 
Income taxes receivable 4,282 
Deferred income taxes9,564 6,507 
Property and equipment, net46,167 42,372 
Operating lease right-of-use assets145,367 135,240 
Goodwill and other intangibles, net866,438 812,844 
Other assets51,612 38,890 
Total assets$2,119,799 $1,677,003 
Liabilities and Stockholders' Equity
Accrued salaries and bonuses$436,438 $420,376 
Accounts payable and accrued expenses55,035 53,883 
Deferred income37,008 26,780 
Income taxes payable19,851  
Deferred income taxes35 664 
Loans payable to former shareholders1,007 1,393 
Loan payable to non-affiliate 3,283 
Operating lease liabilities168,567 154,218 
Other liabilities47,592 32,024 
Total liabilities765,533 692,621 
Commitments and contingencies (Note 17)
Stockholders' equity:
Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 51,623,683 and 46,178,633 shares, respectively
52 46 
Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 17,472,592 and 19,345,277 shares, respectively
17 19 
Additional paid-in capital851,444 649,954 
Retained earnings523,454 377,471 
Accumulated other comprehensive (loss)(20,701)(43,108)
Total stockholders' equity1,354,266 984,382 
Total liabilities and stockholders' equity$2,119,799 $1,677,003 
See accompanying Notes to Consolidated Financial Statements

Three Months Ended December 31,Nine Months Ended December 31,
(In thousands, except share and per share data)2020201920202019
Revenues$537,876 $333,515 $1,024,748 $856,674 
Operating expenses:
Employee compensation and benefits339,743 213,107 654,113 551,056 
Travel, meals, and entertainment1,338 12,943 4,416 32,760 
Rent10,086 9,531 30,010 34,454 
Depreciation and amortization3,949 4,336 11,291 12,280 
Information technology and communications9,281 7,225 22,532 19,477 
Professional fees6,188 6,204 16,422 16,494 
Other operating expenses8,875 12,153 18,083 29,207 
Total operating expenses379,460 265,499 756,867 695,728 
Operating income158,416 68,016 267,881 160,946 
Other (income)/expense, net(187)(1,039)(1,544)(3,787)
Income before provision for income taxes158,603 69,055 269,425 164,733 
Provision for income taxes40,088 20,161 56,020 39,954 
Net income$118,515 $48,894 $213,405 $124,779 
Other comprehensive income, net of tax:
Foreign currency translation adjustments14,037 14,388 22,407 977 
Comprehensive income$132,552 $63,282 $235,812 $125,756 
Attributable to Houlihan Lokey, Inc. common stockholders:
  Weighted average shares of common stock outstanding:
    Basic66,547,587 62,014,564 65,680,516 62,199,716 
    Fully diluted69,356,347 65,608,026 68,596,503 65,770,056 
Earnings per share (Note 13)
    Basic$1.78 $0.79 $3.25 $2.01 
    Fully diluted$1.71 $0.75 $3.11 $1.90 

See accompanying Notes to Consolidated Financial Statements

Class A common stock
Class B common stock
Treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
(In thousands, except share data)
Balances – October 1, 202051,506,192 $52 18,255,244 $18 (392,673)(22,711)$880,370 $427,621 $(34,738)$1,250,612 
Shares issued— — 31,153 — — — 1,701 — — 1,701 
Stock compensation vesting (Note 14)— — — — — — 10,694 — — 10,694 
Dividends— — — — — — — (22,682)— (22,682)
Conversion of Class B to Class A shares790,025 1 (790,025)(1)— — — — —  
Shares issued to non-employee directors (Note 14)3,174 — — — — —  — —  
Other shares repurchased/forfeited(675,708)(1)(23,780)— 392,673 22,711 (41,321)— — (18,611)
Net income— — — — — — — 118,515 — 118,515 
Change in unrealized translation— — — — — — — — 14,037 14,037 
Total comprehensive income— — — — — — — 118,515 14,037 132,552 
Balances – December 31, 202051,623,683 $52 17,472,592 $17  $ $851,444 $523,454 $(20,701)$1,354,266 
Class A common stock
Class B common stock
Treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
(In thousands, except share data)
Balances – October 1, 201941,817,614 $42 24,079,076 $24 (252,306)$(11,219)$635,362 $311,360 $(43,705)$891,864 
Shares issued— — 42,972 — — — 1,209 — — 1,209 
Stock compensation vesting (Note 14)— — — — — — 14,843 — — 14,843 
Class B shares sold2,108,176 2 (2,108,176)(2)— — — — —  
Dividends— — — — — — — (20,433)— (20,433)
Conversion of Class B to Class A shares(7,653)— 7,653 — — — — — —  
Shares issued to non-employee directors (Note 14)2,118 — — — — — 369 — — 369 
Other shares repurchased/forfeited(350,262)— (22,588)— 252,306 11,219 (15,660)— — (4,441)
Net income— — — — — — — 48,894 — 48,894 
Change in unrealized translation— — — — — — — — 14,388 14,388 
Total comprehensive income— — — — — — — 48,894 14,388 63,282 
Balances – December 31, 201943,569,993 $44 21,998,937 $22  $ $636,123 $339,821 $(29,317)$946,693 
See accompanying Notes to Consolidated Financial Statements

Class A common stock
Class B common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
(In thousands, except share data)
Balances – April 1, 202046,178,633 $46 19,345,277 $19 $649,954 $377,471 $(43,108)$984,382 
Cumulative effect of the change in accounting principle related to credit losses, net of tax— — — — — (682)— (682)
Shares issued3,000,000 3 1,596,243 2 223,168 — — 223,173 
Stock compensation vesting (Note 14)— — — — 37,601 — — 37,601 
Dividends— — — — — (66,740)— (66,740)
Conversion of Class B to Class A shares3,121,294 3 (3,121,294)(3)— — —  
Shares issued to non-employee directors (Note 14)8,751 — — — 333 — — 333 
Other shares repurchased/forfeited(684,995)— (347,634)(1)(59,612)— — (59,613)
Net income— — — — — 213,405 — 213,405 
Change in unrealized translation— — — — — — 22,407 22,407 
Total comprehensive income— — — — — 213,405 22,407 235,812 
Balances – December 31, 202051,623,683 $52 17,472,592 $17 $851,444 $523,454 $(20,701)$1,354,266 
Class A common stock
Class B common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
(In thousands, except share data)
Balances – April 1, 201938,200,802 $38 27,197,734 $27 $645,090 $276,468 $(30,294)$891,329 
Shares issued— — 1,537,143 2 7,662 — — 7,664 
Stock compensation vesting (Note 14)— — — — 42,299 — — 42,299 
Class B shares sold3,694,497 4 (3,694,497)(4)— — —  
Dividends— — — — — (61,426)— (61,426)
Conversion of Class B to Class A shares2,297,902 2 (2,297,902)(2)— — —  
Shares issued to non-employee directors (Note 14)9,145 — — — 369 — — 369 
Other shares repurchased/forfeited(632,353)— (743,541)(1)(59,297)— — (59,298)
Net income— — — — — 124,779 — 124,779 
Change in unrealized translation— — — — — — 977 977 
Total comprehensive income— — — — — 124,779 977 125,756 
Balances – December 31, 201943,569,993 $44 21,998,937 $22 $636,123 $339,821 $(29,317)$946,693 

See accompanying Notes to Consolidated Financial Statements

Nine Months Ended December 31,
(In thousands) 20202019
Cash flows from operating activities:
Net income$213,405 $124,779 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes(1,997)(9,283)
Provision for bad debts, net4,829 72 
Unrealized gains on investment securities(593)(182)
Non-cash lease expense17,023 11,469 
Depreciation and amortization11,291 12,280 
Compensation expense – equity and liability classified share awards (Note 14)46,779 47,791 
Changes in operating assets and liabilities:
Accounts receivable(1,064)9,815 
Unbilled work in process(13,485)4,287 
Other assets(12,444)(4,152)
Accrued salaries and bonuses18,101 (85,018)
Accounts payable and accrued expenses and other(9,223)3,245 
Deferred income10,131 58 
Income taxes payable24,431 (4,403)
Net cash provided by operating activities307,184 110,758 
Cash flows from investing activities:
Purchases of investment securities(294,196)(248,176)
Sales or maturities of investment securities195,601 282,422 
Acquisition of business, net of cash acquired (12,470)(2,197)
Receivables from affiliates (170)
Purchase of property and equipment, net(11,002)(16,971)
Net cash provided by/(used in) investing activities(122,067)14,908 
Cash flows from financing activities:
Dividends paid(70,302)(61,104)
Share repurchases(41,814)(27,828)
Payments to settle employee tax obligations on share-based awards(17,810)(31,469)
Proceeds from issuance of Class A shares189,060  
Loans payable to former shareholders redeemed(386)(446)
Repayments of loans to non-affiliates(1,900)(10,786)
Other financing activities333 369 
Net cash provided by/(used in) financing activities57,181 (131,264)
Effects of exchange rate changes on cash, cash equivalents, and restricted cash10,988 (3,409)
Net increase/(decrease) in cash, cash equivalents, and restricted cash253,286 (9,007)
Cash, cash equivalents, and restricted cash – beginning of period380,746 286,115 
Cash, cash equivalents, and restricted cash – end of period$634,032 $277,108 
Supplemental disclosures of non-cash activities:
Shares issued via vesting of liability classified awards$7,511 $6,453 
Cash acquired through acquisitions$88 $15,755 
Cash paid during the period:
Interest$744 $657 
Taxes, net of refunds33,692 53,358 
See accompanying Notes to Consolidated Financial Statements

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

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:
Houlihan Lokey Capital, Inc., a California corporation ("HL Capital, Inc."), is a wholly owned direct subsidiary of HL, Inc. HL Capital, Inc. is registered as a broker-dealer under Section 15(b) of the Securities Exchange Act of 1934 and a member of Financial Industry Regulatory Authority, Inc.

Houlihan Lokey Financial Advisors, Inc., a California corporation ("HL FA, Inc."), is a wholly owned direct subsidiary of HL, Inc.

HL Finance, LLC ("HL Finance"), a syndicated leveraged finance platform established to arrange senior secured leveraged loans for financial sponsor-backed, privately-held, and public corporate entities. HL Finance acts as an arranger on syndicated loan transactions and has entered into an agreement with an unaffiliated third party investor that may provide commitments with respect to certain syndicated loans arranged by HL Finance.

Houlihan Lokey EMEA, LLP, a limited liability partnership registered in England ("HL EMEA, LLP"), is an indirect subsidiary of HL, Inc. HL EMEA, LLP is regulated by the Financial Conduct Authority in the United Kingdom ("U.K.").

On August 18, 2015, the Company successfully completed an initial public offering ("IPO") of its Class A common stock.

In June 2019, the Company exercised its option to acquire the remaining 51% of the shares of Lara (Italy Holdco) Limited ("Lara"). Lara's only operating subsidiary, Houlihan Lokey S.p.A., is an Italian-based company that provides corporate finance advisory services.

In November 2019, the Company completed the acquisition of Fidentiis Capital, an independent advisory business providing independent corporate finance advisory services relating to mergers and acquisitions, capital raising, and financing.

In December 2019, the Company completed the acquisition of Freeman & Co., an independent advisory business providing mergers and acquisitions advisory, capital raising, and other investment banking advisory services for the financial services sector.

In August 2020, the Company completed the acquisition of MVP Capital, LLC ("MVP"), an independent advisory firm that provides a range of financial advisory services to clients in the technology, media, and telecommunications sectors.

The Company offers financial services and financial advice to a broad clientele located throughout the United States of America, Europe, the Middle East, and the Asia-Pacific region. The Company has U.S. offices in Los Angeles, San Francisco, Chicago, New York City, Minneapolis, McLean (Virginia), Boston, Dallas, Houston, Miami, and Atlanta as well as foreign offices in London, Paris, Frankfurt, Milan, 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:

Corporate Finance ("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 fees paid upon the successful completion of the transaction or engagement ("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 the fees paid at the time an engagement letter is signed ("Retainer Fees") and in some cases fees paid during the course of the engagement ("Progress Fees") that may have been received.


Table of Contents
(In thousands, except share data or as otherwise stated)
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 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.

Financial and Valuation Advisory ("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.
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"), pursuant to the rules and regulations of the 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 months ended December 31, 2020 are not necessarily indicative of the results of operations to be expected for the fiscal year ending March 31, 2021. 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, 2020 (the "2020 Annual Report").
Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, shareholders' equity or cash flows as previously reported.
Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries where it has a controlling financial interest. All 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)/expense, net in the Consolidated Statements of Comprehensive Income.
Use of Estimates

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, but are not limited to: the allowance for credit losses; 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.

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

Revenues consist of fee revenues from advisory services and reimbursed costs incurred in fulfilling the contracts. Revenues reflect fees generated from our CF, FR, and FVA business segments.
The Company generates revenues from contractual advisory services and reimbursed costs incurred in fulfilling the contracts for such services. Revenues for all three business segments (CF, FR, and FVA) are recognized upon satisfaction of the performance obligation, 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.

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 fees (i.e., the success related Completion Fees) are considered variable and constrained as they are contingent upon a future event which includes factors outside of our control (e.g., completion of a transaction or third party emergence from bankruptcy or approval by the court).

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.
Revenues from 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. 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.

Revenues from 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 time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. Completion Fees from these engagements are considered variable and constrained until the related transaction has been effectively closed as they are contingent upon a future event which includes factors outside of our control (e.g., completion of a transaction or third party emergence from bankruptcy or approval by the court).

Revenues from FVA 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 consist 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.

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 of comprehensive income.

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Operating Expenses

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 types of operating expenses include: Travel, meals, and entertainment; Rent; Depreciation and amortization; Information technology and communications; Professional fees; and Other operating expenses.
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. We did not have any outstanding foreign currency forward contracts as of December 31, 2020. As of December 31, 2019, we had two foreign currency forward contracts outstanding, one between the pound sterling and the U.S. dollar with a notional value of $5.0 million and one between the pound sterling and the euro with a notional value of €1.0 million. The fair value of these contracts represented a net gain included in Other operating expenses of $30 during the three months ended December 31, 2019.

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:

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 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:
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.
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 estimated useful lives of the respective assets. Leasehold improvements are recorded as prepaid assets and included within fixed lease payments. See Note 16 for additional information.

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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 December 31, 2020 and March 31, 2020, the Company had cash balances with banks in excess of insured limits. The Company 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.     
December 31, 2020
March 31, 2020
Cash and cash equivalents$633,659 $380,373 
Restricted cash (1)
373 373 
Total cash, cash equivalents, and restricted cash$634,032 $380,746 
(1)Restricted cash as of December 31, 2020 and March 31, 2020 consisted of a cash secured letter of credit issued for our Frankfurt office.

Investment Securities

Investment securities consist of corporate debt and U.S. Treasury securities with original maturities over 90 days. The Company classifies its investment securities as trading and measures them at fair value in the Consolidated Balance Sheets. Unrealized holding gains and losses for trading securities are included in Other (income)/expense, net in the accompanying Consolidated Statements of Comprehensive Income.     

Allowance for Credit Losses

The allowance for credit losses on accounts receivable and unbilled work in progress reflects management’s best estimate of expected losses using the Company's internal current expected credit losses model. This model analyzes expected losses based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that could potentially affect the collectibility of the reported amounts. This is recorded through provision for bad debts, which is included in Other operating expenses in the accompanying Consolidated Statements of Comprehensive Income. Amounts deemed to be uncollectible are written off against the allowance for credit losses.

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.
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 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 of being 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.
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.

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On March 27, 2020 the United States enacted into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act and on December 27, 2020, the President signed into law the Coronavirus Response and Relief Supplemental Appropriations Act. These laws are meant to address the economic uncertainty as a result of the coronavirus pandemic. The Company has completed its evaluation of the provisions of these laws, which resulted in no material impacts on its income tax provision.

We assess whether an arrangement is or contains a lease at the inception of the agreement. Right-of-use ("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.
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.
Goodwill and Intangible 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.
Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. Goodwill is reviewed for impairment in accordance with 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, 2020, 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.
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, 2020, management concluded that it was not more likely than not that the fair values were less than the carrying values.

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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, 2020, no events or changes in circumstances were identified that indicated that the carrying amount of the finite-lived intangible assets were not recoverable.
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.

On April 1, 2020, we adopted ASU 2016-13 Financial Instruments—Credit Losses — Measurement of Credit Losses on Financial Instruments, and all related amendments, under a modified retrospective approach. Upon adoption, a cumulative transition adjustment was recorded, which reduced retained earnings by $(924). The tax impact of this adjustment increased retained earnings by $242, resulting in a net decrease to retained earnings of $(682) as of April 1, 2020. The impact of this pronouncement had an immaterial impact on our Net income for the nine months ended December 31, 2020.

The following table provides a reconciliation of the cumulative transition adjustment pertaining to the adoption of the credit loss guidance reported within the Consolidated Balance Sheets.
March 31, 2020
Transition Adjustment
April 1, 2020
Accounts receivable, net of allowance for credit losses$80,912 $(599)$80,313 
Unbilled work in progress, net of allowance for credit losses39,821 (232)39,589