# HOULIHAN LOKEY, INC. (HLI) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HOULIHAN LOKEY, INC.'s 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1302215/000130221525000024/hli-20250331.htm
Accession: 0001302215-25-000024
Filing date: 2025-05-15
Report date: 2025-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HLI/
All MD&A years: /company/HLI/mda/
Previous year: /company/HLI/mda/fy2024/ (FY 2024)
Next year: /company/HLI/mda/fy2026/ (FY 2026)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 2023-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 2024, which was filed with the Securities and Exchange Commission on May 21, 2024.

Executive Overview

Established in 1972, Houlihan Lokey is a global investment bank with expertise in mergers and acquisitions, capital markets, financial restructurings and liability management, and financial and valuation advisory. With offices in the Americas, Europe, the Middle East, and the Asia-Pacific region, the Company serves a diverse set of clients including corporations, institutions, and governments 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 Solutions. Through our FR business segment, we advise on some of the largest and most complex restructurings and liability management transactions around the world. Our FVA business segment is one of the largest and most respected valuation, financial opinion and financial consulting practices in the United States.

As of March 31, 2025, we served our clients globally with 1,893 financial professionals, including 339 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.

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 those relating to our executive management, accounting, information technology, legal and compliance, 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 the section entitled “Risk Factors” for a discussion of some of the factors that can affect our performance.

Our fiscal year ends on March 31 of each year. For the fiscal year ended March 31, 2025, we earned revenues of $2.39 billion, an increase of 25% from the $1.91 billion earned during the fiscal year ended March 31, 2024.

For the fiscal years ended March 31, 2025, 2024, and 2023, we earned revenues of $687 million, $570 million, and $520 million, respectively, from our international operations.

Based on historical experience, we believe current economic conditions provide a relatively stable environment for M&A and capital markets activities, but the continued threat from sustained elevated interest rates or inflation, international conflict, and international trade policies provide some level of uncertainty in the coming quarters. In the United States, our dialogue with clients who are evaluating strategic alternatives remains measured as we continue to see concerns around the macro-economic factors mentioned above.

Our Financial Restructuring activity has improved as a result of the factors mentioned above (elevated interest rates, global trade policy and conflict). We continue to remain optimistic about the current restructuring and liability management outlook over the short to medium term due to elevated interest rates, record levels of company leverage, recent geopolitical events, global trade policy disruption, and contracting monetary policy.

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Key Financial Measures

Revenues

Revenues include fee revenues and reimbursements of expenses (see Note 2 and Note 3 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 and advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions, including financial sponsors, on a wide variety of matters, including buy-side and sell-side M&A transactions, debt and equity financings in both the private and public markets, and other corporate finance 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 through bankruptcy proceedings and 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; liability management transactions; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. The majority of our FR revenues consists of Completion Fees. 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 financial advisory and valuation services with respect to companies, debt and equity interests (including complex illiquid investments), and other types of assets and liabilities; fairness opinions in connection with mergers and acquisitions and other transactions, solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions; as well as diligence, tax, transaction accounting, and other financial advisory services to companies, boards of directors, special committees, retained counsel, financial and strategic investors, trustees, and other parties. 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.

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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. Annual equity-based bonus awards granted prior to December 31, 2024 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 typically 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, and in certain cases if certain financial metrics are not met. 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 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, Net

Other income, 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 HLI Line of Credit (defined herein), (iii) equity income and/or gains or losses from funds and partnership interests where we have had 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, (iv) gains and/or losses associated with the reduction/increase of earnout liabilities, and (v) other miscellaneous non-operating expenses.

Results of Consolidated Operations

The following is a discussion of our results of operations for the years ended March 31, 2025 and 2024. 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.

[[GREPCENT_TABLE]]
[["","Year Ended March 31,","","Change"],["($ in thousands)","2025","","2024","","","","\u201924-\u201925"],["Revenues","$","2,389,416","","","$","1,914,404","","","","","25","%"],["Operating expenses:"],["Employee compensation and benefits","1,524,268","","","1,213,589","","","","","26","%"],["Non-compensation expenses","363,604","","","337,954","","","","","8","%"],["Total operating expenses","1,887,872","","","1,551,543","","","","","22","%"],["Operating income","501,544","","","362,861","","","","","38","%"],["Other income, net","(29,791)","","","(27,678)","","","","","8","%"],["Income before provision for income taxes","531,335","","","390,539","","","","","36","%"],["Provision for income taxes","131,624","","","110,238","","","","","19","%"],["Net income attributable to Houlihan Lokey, Inc.","$","399,711","","","$","280,301","","","","","43","%"]]
[[/GREPCENT_TABLE]]

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Year Ended March 31, 2025 versus March 31, 2024

Revenues were $2.39 billion for the year ended March 31, 2025, compared with $1.91 billion for the year ended March 31, 2024, representing an increase of 25%. The increase in revenues was primarily the result of an increase in CF revenues for the year ended March 31, 2025, compared with the year ended March 31, 2024, as described in further detail below. For the year ended March 31, 2025, CF revenues increased 38%, FR revenues increased 4%, and FVA revenues increased 11% when compared with the year ended March 31, 2024.

Operating expenses were $1.89 billion for the year ended March 31, 2025, compared with $1.55 billion for the year ended March 31, 2024, an increase of 22%. Employee compensation and benefits expense, as a component of operating expenses, was $1.52 billion for the year ended March 31, 2025, compared with $1.21 billion for the year ended March 31, 2024, an increase of 26%. The increase in employee compensation and benefits expense was primarily due to the increase in revenues for the fiscal year. The Compensation Ratio was 64% and 63% for the years ended March 31, 2025 and 2024, respectively. Non-compensation expenses, as a component of operating expenses, were $363.6 million for the year ended March 31, 2025, compared with $338.0 million for the year ended March 31, 2024, an increase of 8%. The increase in non-compensation expenses was primarily a result of an increase in depreciation and amortization, other operating expenses, and information technology and communications expenses, partially offset by a decrease in professional fees.

Other income, net increased to $(29.8) million for the year ended March 31, 2025, compared with $(27.7) million for the year ended March 31, 2024. The increase in other income, net was primarily due to a net increase in interest income generated by our cash and cash equivalents and investment securities, partially offset by a lower gain recognized on the reduction in the fair value of certain earnout liabilities for the fiscal year ended March 31, 2025, compared with the fiscal year ended March 31, 2024.

The provision for income taxes for the year ended March 31, 2025 was $131.6 million, which reflected an effective tax rate of 25%. The provision for income taxes for the year ended March 31, 2024 was $110.2 million, which reflected an effective tax rate of 28%. The decrease in the Company’s tax rate during the year ended March 31, 2025 relative to the year ended March 31, 2024 was primarily a result of the release of the provision for an uncertain tax position as a result of the successful closure of a city audit.

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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, net, and income taxes.

[[GREPCENT_TABLE]]
[["","Year Ended March 31,","","Change"],["($ in thousands)","2025","","2024","","","","\u201924-\u201925"],["Revenues by segment"],["Corporate Finance","$","1,526,756","","","$","1,106,826","","","","","38","%"],["Financial Restructuring","544,478","","","521,984","","","","","4","%"],["Financial and Valuation Advisory","318,182","","","285,594","","","","","11","%"],["Revenues","$","2,389,416","","","$","1,914,404","","","","","25","%"],["Segment profit (1)"],["Corporate Finance","$","474,423","","","$","302,533","","","","","57","%"],["Financial Restructuring","209,306","","","194,116","","","","","8","%"],["Financial and Valuation Advisory","88,583","","","74,422","","","","","19","%"],["Total segment profit","772,312","","","571,071","","","","","35","%"],["Corporate expenses (2)","270,768","","","208,210","","","","","30","%"],["Other income, net","(29,791)","","","(27,678)","","","","","8","%"],["Income before provision for income taxes","$","531,335","","","$","390,539","","","","","36","%"],["Segment Metrics:"],["Number of Managing Directors"],["Corporate Finance","240","","","223","","","","8","%"],["Financial Restructuring","57","","","54","","","","6","%"],["Financial and Valuation Advisory","42","","","39","","","","8","%"],["Number of closed transactions/Fee Events (3)"],["Corporate Finance","564","","","450","","","","25","%"],["Financial Restructuring","145","","","126","","","","15","%"],["Financial and Valuation Advisory","2,441","","","2,178","","","","12","%"]]
[[/GREPCENT_TABLE]]

(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 those related to executive management, accounting, information technology, legal and compliance, 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 of one 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 Ended March 31, 2025 Compared to the Year Ended March 31, 2024

Revenues for CF were $1.53 billion for the year ended March 31, 2025, compared with $1.11 billion for the year ended March 31, 2024, representing an increase of 38%. The increase in revenues was primarily due to a 25% increase in the number of closed transactions for the year ended March 31, 2025, compared with the year ended March 31, 2024, which was driven by favorable market conditions.

Segment profit for CF was $474 million for the year ended March 31, 2025, compared with $303 million for the year ended March 31, 2024, representing an increase of 57%. The increase in segment profit was primarily a result of higher revenues for the year ended March 31, 2025, compared with the year ended March 31, 2024.

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Financial Restructuring

Year Ended March 31, 2025 Compared to the Year Ended March 31, 2024

Revenues for FR were $544 million for the year ended March 31, 2025, compared with $522 million for the year ended March 31, 2024, representing an increase of 4%. The increase in revenues was primarily due to a 15% increase in the number of closed transactions for the year ended March 31, 2025, compared with the year ended March 31, 2024, which was driven by favorable market conditions.

Segment profit for FR was $209 million for the year ended March 31, 2025, compared with $194 million for the year ended March 31, 2024, an increase of 8%. The increase in segment profit was primarily a result of higher revenues for the year ended March 31, 2025, compared with the year ended March 31, 2024.

Financial and Valuation Advisory

Year Ended March 31, 2025 Compared to the Year Ended March 31, 2024

Revenues for FVA were $318 million for the year ended March 31, 2025, compared with $286 million for the year ended March 31, 2024, an increase of 11%. The increase in revenues was primarily due to an increase in the number of Fee Events for the year ended March 31, 2025, compared with the year ended March 31, 2024, driven by improvements in the M&A markets, which affected one or more of the service lines within our FVA business.

Segment profit for FVA was $89 million for the year ended March 31, 2025, compared with $74 million for the year ended March 31, 2024, representing an increase of 19%. The increase in segment profit was primarily a result of higher revenues and lower non-compensation expenses for the year ended March 31, 2025, compared with the year ended March 31, 2024.

Corporate Expenses

Year Ended March 31, 2025 Compared to the Year Ended March 31, 2024

Corporate expenses were $271 million for the year ended March 31, 2025, compared with $208 million for the year ended March 31, 2024, representing an increase of 30%. The increase in corporate expenses was primarily a result of higher compensation expenses for the year ended March 31, 2025, compared with the year ended March 31, 2024.

Liquidity and Capital Resources

Our current assets comprise cash and cash equivalents, investment securities, 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 other liabilities.

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-dealers. As of March 31, 2025 and 2024, we had $686 million and $545 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, and investment grade corporate debt securities. Please refer to Note 6 for further detail.

As of March 31, 2025 and 2024, our cash and cash equivalents, investment securities, and restricted cash were as follows:

[[GREPCENT_TABLE]]
[["(In thousands)","March 31, 2025","","March 31, 2024"],["Cash and cash equivalents","$","971,007","","","$","721,235"],["Investment securities","195,624","","","38,005"],["Total unrestricted cash and cash equivalents, including investment securities","1,166,631","","","759,240"],["Restricted cash (1)","4,572","","","619"],["Total cash, cash equivalents, and restricted cash, including investment securities","$","1,171,203","","","$","759,859"]]
[[/GREPCENT_TABLE]]

(1)Restricted cash as of March 31, 2025 and March 31, 2024 included cash deposits in support of two letters of credit for our Frankfurt office. Restricted cash as of March 31, 2025 also included cash held in escrow accounts and collateral to support rent guarantees.

As of each fiscal year end, a material portion of our cash and cash equivalents is reserved to cover accrued, but unpaid bonuses, that are paid the following May and November.

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 of March 31, 2025 and 2024, we had $257 million and $200 million of Accounts receivable, net of credit losses, respectively. As of March 31, 2025 and 2024, we had $158 million and $192 million of Unbilled work in progress, net of credit losses, respectively.

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Subsequent to the end of fiscal 2025, our board of directors declared a quarterly cash dividend of $0.60 per share of common stock, payable on June 15, 2025 to shareholders of record as of the close of business on June 2, 2025.

On August 23, 2019, the Company entered into a syndicated revolving line of credit with the Bank of America, N.A. and certain other financial institutions party thereto, which was amended by a First Amendment to Credit Agreement dated as of August 2, 2022 (the “HLI Line of Credit”), which allows for borrowings of up to $100 million (and, subject to certain conditions, provides the Company with an uncommitted expansion option, which, if exercised in full, would provide for a total credit facility of $200 million), and matures on August 23, 2025 (or if such date is not a business day, the immediately preceding business day). Borrowings under the HLI Line of Credit bear interest at a floating rate, which can be either, at the Company’s option, (i) Term Secured Overnight Financing Rate (“SOFR”) plus a 0.10% SOFR adjustment plus a 1.00% margin or (ii) base rate, which is the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) Term SOFR plus a 0.10% SOFR adjustment. Commitment fees apply to unused amounts. The HLI Line of Credit contains debt covenants which require that the Company maintain certain financial ratios, 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 of March 31, 2025, we were, and expect to continue to be, in compliance with such covenants. As of March 31, 2025, no principal was outstanding under the HLI Line of Credit.

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 of March 31, 2025 and March 31, 2024.

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:

[[GREPCENT_TABLE]]
[["","Year Ended March 31,"],["(In thousands)","2025","","2024"],["Operating activities:"],["Net income","$","399,711","","","$","280,301"],["Non-cash charges","252,823","","","244,524"],["Other operating activities","196,075","","","(196,367)"],["Net cash provided by operating activities","848,609","","","328,458"],["Net cash used in investing activities","(265,058)","","","(70,406)"],["Net cash used in financing activities","(329,070)","","","(250,585)"],["Effects of exchange rate changes on cash and cash equivalents","(756)","","","(425)"],["Net increase in cash, cash equivalents, and restricted cash","253,725","","","7,042"],["Cash, cash equivalents and restricted cash \u2013 beginning of period","721,854","","","714,812"],["Cash, cash equivalents and restricted cash \u2013 end of period","$","975,579","","","$","721,854"]]
[[/GREPCENT_TABLE]]

Year Ended March 31, 2025

Operating activities resulted in a net cash inflow of $848.6 million for the year ended March 31, 2025, primarily due to net income of $399.7 million, non-cash charges of $252.8 million, and other operating activities of $196.1 million. Investing activities resulted in a net outflow of $(265.1) million for the year ended March 31, 2025, primarily due to purchases of investment securities and cash consideration transferred in connection with business acquisitions. Financing activities resulted in a net outflow of $(329.1) million primarily due to dividends paid, payments to settle employee tax obligations on share-based awards, and share repurchases made during the year ended March 31, 2025.

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Year Ended March 31, 2024

Operating activities resulted in a net cash inflow of $328.5 million for the year ended March 31, 2024, primarily due to net income of $280.3 million and non-cash charges of $244.5 million, partially offset by a decrease in other operating activities of $(196.4) million. Investing activities resulted in a net outflow of $(70.4) million for the year ended March 31, 2024, primarily due to acquisitions of property and equipment and purchases of investment securities, partially offset by the sale or maturity of investment securities. Financing activities resulted in a net outflow of $(250.6) million primarily due to dividends paid, payments to settle employee tax obligations on share-based awards, and share repurchases made during the year ended March 31, 2024.

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.    

Recognition of Revenue

CF provides general financial advisory services and advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions, including financial sponsors, on a wide variety of matters, including buy-side and sell-side M&A transactions, debt and equity financings in both the private and public markets, and other corporate finance 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 through bankruptcy proceedings and 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; liability management transactions; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. The majority of our FR revenues consists of Completion Fees. 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 financial advisory and valuation services with respect to companies, debt and equity interests (including complex illiquid investments), and other types of assets and liabilities; fairness opinions in connection with mergers and acquisitions and other transactions, solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions; as well as diligence, tax, transaction accounting, and other financial advisory services to companies, boards of directors, special committees, retained counsel, financial and strategic investors, trustees, and other parties. 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 and Note 3 included in Part II, Item 8 of this Form 10-K for additional information.

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Provision for Income Taxes

The Company files consolidated federal income tax returns, 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.

Business Combinations

Accounting for business combinations requires management to make significant estimates and assumptions. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows, expected asset lives, geographic risk premiums, discount rates, and more. The amounts and useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.

Recent Accounting Developments

For additional information on recently issued accounting developments and their impact or potential impact, if applicable, on our consolidated financial statements, see Note 2 included in Part II, Item 8 of this Form 10-K.

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