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Section 1: 10-Q (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

 

 

(Mark One)

 

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

For the quarterly period ended September 30, 2016

Or

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

For the transition period from                    to                 

 

Commission File Number: 001‑36418

 

Moelis & Company

(Exact name of registrant as specified in its charter)

 

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

46‑4500216
(I.R.S. Employer
Identification No.)

399 Park Avenue, 5th Floor, New York NY
(Address of principal executive offices)

10022
(Zip Code)

 

(212) 883‑3800

(Registrant’s telephone number, including area code)

 

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 and 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  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes  ☐ No

 

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

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐
(Do not check if a
smaller reporting company)

Smaller reporting company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b‑2 of the Exchange Act). ☐ Yes  ☒ No

 

As of October 27, 2016, there were 20,588,226 shares of Class A common stock, par value $0.01 per share, and 31,138,193 shares of Class B common stock, par value $0.01 per share, outstanding.

 

 

 


 

Table of Contents

TABLE OF CONTENTS

 

 

 

 

 

Page

Part I. Financial Information 

 

Item 1. 

Financial Statements

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

44 

Item 4. 

Controls and Procedures

44 

Part II. Other Information 

 

Item 1. 

Legal Proceedings

45 

Item 1A. 

Risk Factors

45 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

45 

Item 3. 

Defaults Upon Senior Securities

46 

Item 4. 

Mine Safety Disclosures

46 

Item 5. 

Other Information

46 

Item 6. 

Exhibits

47 

Signatures 

48 

 

2


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

Page

Condensed Consolidated Statements of Financial Condition as of September 30, 2016 and December 31, 2015 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 

Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2016 and 2015 

Notes to Condensed Consolidated Financial Statements 

 

3


 

Table of Contents

Moelis & Company

Condensed Consolidated Statements of Financial Condition

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2016

 

2015

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

202,611

 

$

248,022

 

Restricted cash

 

 

769

 

 

819

 

Receivables:

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts of $596 and $1,149 as of September 30, 2016 and December 31, 2015, respectively

 

 

25,583

 

 

28,937

 

Other receivables

 

 

9,765

 

 

10,333

 

Total receivables

 

 

35,348

 

 

39,270

 

Deferred compensation

 

 

9,729

 

 

9,040

 

Investments at fair value (cost basis $33,598 and $38,628 as of  September 30, 2016 and December 31, 2015, respectively)

 

 

33,506

 

 

38,624

 

Equity method investments

 

 

20,309

 

 

17,459

 

Equipment and leasehold improvements, net

 

 

9,079

 

 

8,698

 

Deferred tax asset

 

 

168,668

 

 

165,505

 

Prepaid expenses and other assets

 

 

10,329

 

 

12,024

 

Total assets

 

$

490,348

 

$

539,461

 

Liabilities and Equity

 

 

 

 

 

 

 

Compensation payable

 

$

69,650

 

$

124,233

 

Accounts payable and accrued expenses

 

 

13,139

 

 

21,203

 

Amount due pursuant to tax receivable agreement

 

 

120,774

 

 

120,334

 

Deferred revenue

 

 

13,310

 

 

7,003

 

Other liabilities

 

 

10,951

 

 

9,270

 

Total liabilities

 

 

227,824

 

 

282,043

 

Commitments and Contingencies (See Note 12)

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 20,894,035 issued and 20,532,287 outstanding at September 30, 2016; 1,000,000,000 authorized, 20,536,740 issued and 20,273,118 outstanding at December 31, 2015

 

 

209

 

 

205

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 31,138,193 issued and outstanding at September 30, 2016; 1,000,000,000 authorized, 31,229,236 issued and outstanding at December 31, 2015

 

 

311

 

 

312

 

Treasury stock, at cost; 361,748 and 263,622 shares as of September 30, 2016 and December 31, 2015, respectively

 

 

(10,237)

 

 

(7,616)

 

Additional paid-in-capital

 

 

256,531

 

 

190,703

 

Retained earnings (accumulated deficit)

 

 

(37,596)

 

 

(15,338)

 

Accumulated other comprehensive income (loss)

 

 

(444)

 

 

108

 

Total Moelis & Company equity

 

 

208,774

 

 

168,374

 

Noncontrolling interests

 

 

53,750

 

 

89,044

 

Total equity

 

 

262,524

 

 

257,418

 

Total liabilities and equity

 

$

490,348

 

$

539,461

 

See notes to the condensed consolidated financial statements (unaudited).

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Table of Contents

   

Moelis & Company

Condensed Consolidated Statements of Operations

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Revenues

 

$

150,676

 

$

151,789

 

$

408,765

 

$

377,074

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

88,046

 

 

86,277

 

 

240,912

 

 

211,333

 

Occupancy

 

 

4,096

 

 

3,836

 

 

14,941

 

 

11,228

 

Professional fees

 

 

2,804

 

 

5,116

 

 

7,551

 

 

12,813

 

Communication, technology and information services

 

 

5,496

 

 

4,862

 

 

16,101

 

 

13,403

 

Travel and related expenses

 

 

4,490

 

 

5,951

 

 

16,452

 

 

16,695

 

Depreciation and amortization

 

 

817

 

 

646

 

 

2,359

 

 

1,954

 

Other expenses

 

 

4,813

 

 

5,192

 

 

10,885

 

 

15,586

 

Total expenses

 

 

110,562

 

 

111,880

 

 

309,201

 

 

283,012

 

Operating income (loss)

 

 

40,114

 

 

39,909

 

 

99,564

 

 

94,062

 

Other income and (expenses)

 

 

187

 

 

(456)

 

 

391

 

 

(474)

 

Income (loss) from equity method investments

 

 

1,562

 

 

450

 

 

3,897

 

 

3,510

 

Income (loss) before income taxes

 

 

41,863

 

 

39,903

 

 

103,852

 

 

97,098

 

Provision for income taxes

 

 

6,550

 

 

5,273

 

 

16,715

 

 

15,652

 

Net income (loss)

 

 

35,313

 

 

34,630

 

 

87,137

 

 

81,446

 

Net income (loss) attributable to noncontrolling interests

 

 

25,824

 

 

24,540

 

 

63,785

 

 

58,889

 

Net income (loss) attributable to Moelis & Company

 

$

9,489

 

$

10,090

 

$

23,352

 

$

22,557

 

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,926,745

 

 

20,184,835

 

 

20,807,189

 

 

19,919,675

 

Diluted

 

 

24,301,063

 

 

21,466,021

 

 

23,516,239

 

 

21,105,523

 

Net income (loss) per share attributable to holders of shares of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.45

 

$

0.50

 

$

1.12

 

$

1.13

 

Diluted

 

$

0.39

 

$

0.47

 

$

0.99

 

$

1.07

 

Dividends declared per share of Class A common stock

 

$

0.32

 

$

0.30

 

$

1.72

 

$

0.70

 

See notes to the condensed consolidated financial statements (unaudited).

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Table of Contents

Moelis & Company

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Net income

 

$

35,313

 

$

34,630

 

$

87,137

 

$

81,446

 

Unrealized gain (loss) on investments

 

 

(148)

 

 

 —

 

 

(105)

 

 

 —

 

Foreign currency translation adjustment, net of tax

 

 

(668)

 

 

(1,583)

 

 

(1,368)

 

 

(17)

 

Other comprehensive income (loss)

 

 

(816)

 

 

(1,583)

 

 

(1,473)

 

 

(17)

 

Comprehensive income (loss)

 

 

34,497

 

 

33,047

 

 

85,664

 

 

81,429

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

25,312

 

 

23,546

 

 

62,864

 

 

58,891

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

9,185

 

$

9,501

 

$

22,800

 

$

22,538

 

See notes to the condensed consolidated financial statements (unaudited).

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Moelis & Company

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2016

    

2015

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

87,137

 

$

81,446

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Bad debt expense

 

 

124

 

 

668

Depreciation and amortization

 

 

2,359

 

 

1,954

(Income) loss from equity method investments

 

 

(3,897)

 

 

(3,510)

Equity-based compensation

 

 

56,313

 

 

33,337

Deferred tax provision

 

 

(1,931)

 

 

595

Other

 

 

700

 

 

484

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,763

 

 

(11,913)

Other receivables

 

 

1,234

 

 

(1,376)

Prepaid expenses and other assets

 

 

1,342

 

 

(2,397)

Deferred compensation

 

 

(841)

 

 

(2,863)

Compensation payable

 

 

(53,017)

 

 

(62,206)

Accounts payable and accrued expenses

 

 

(7,664)

 

 

(2,233)

Deferred revenue

 

 

6,324

 

 

1,925

Dividends received

 

 

804

 

 

2,473

Other liabilities

 

 

2,075

 

 

540

Net cash provided by (used in) operating activities

 

 

93,825

 

 

36,924

Cash flows from investing activities

 

 

 

 

 

 

Purchase of investments

 

 

(95,919)

 

 

(129,984)

Proceeds from sales of investments

 

 

101,000

 

 

57,000

Return of capital from equity method investments

 

 

9

 

 

221

Notes issued to employees

 

 

(852)

 

 

 —

Purchase of equipment and leasehold improvements

 

 

(2,737)

 

 

(2,902)

Change in restricted cash

 

 

(30)

 

 

(32)

Net cash provided by (used in) investing activities

 

 

1,471

 

 

(75,697)

Cash flows from financing activities

 

 

 

 

 

 

Dividends and distributions

 

 

(135,751)

 

 

(64,394)

Purchase of treasury stock

 

 

(2,621)

 

 

(7,006)

Payments under tax receivable agreement

 

 

 —

 

 

Excess tax benefits from equity-based compensation

 

 

90

 

 

449

Class A partnership units and other equity purchased

 

 

 —

 

 

(90)

Net cash provided by (used in) financing activities

 

 

(138,282)

 

 

(71,041)

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

(2,425)

 

 

(294)

Net increase (decrease) in cash and cash equivalents

 

 

(45,411)

 

 

(110,108)

Cash and cash equivalents, beginning of period

 

 

248,022

 

 

197,944

Cash and cash equivalents, end of period

 

$

202,611

 

$

87,836

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Income taxes

 

$

20,609

 

$

19,280

Other non-cash activity

 

 

 

 

 

 

Class A Partnership Units or other equity converted into Class A Common Stock

 

$

783

 

$

4,478

Dividend equivalents issued

 

$

10,276

 

$

2,732

See notes to the condensed consolidated financial statements (unaudited).

 

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Table of Contents

Moelis & Company

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

Class B

 

 

 

Class A

 

Class B

 

 

 

 

Additional

 

Earnings

 

Other

 

 

 

 

 

 

 

 

 

Common

 

Common

 

Treasury

 

Common

 

Common

 

Treasury

 

Paid-In

 

(Accumulated

 

Comprehensive

 

Noncontrolling

 

Total

 

 

    

Stock

    

Stock

    

Stock

    

Stock

    

Stock

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Interests

    

 Equity

 

Balance as of January 1, 2016

 

20,536,740

 

31,229,236

 

(263,622)

 

$

205

 

$

312

 

$

(7,616)

 

$

190,703

 

$

(15,338)

 

$

108

 

$

89,044

 

$

257,418

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

23,352

 

 

 

 

63,785

 

 

87,137

 

Equity-based compensation

 

253,757

 

(2,132)

 

 

 

3

 

 

 

 

 

 

53,934

 

 

 

 

 

 

2,376

 

 

56,313

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(552)

 

 

(921)

 

 

(1,473)

 

Dividends ($1.72 per share of Class A Common Stock) and distributions

 

 

 

 

 

 

 

 

 

 

 

10,276

 

 

(45,610)

 

 

 

 

(100,417)

 

 

(135,751)

 

Treasury stock purchases

 

 

 

(98,126)

 

 

 

 

 

 

(2,621)

 

 

 

 

 

 

 

 

 

 

(2,621)

 

Class A Partnership Units and other equity purchased or converted to Class A Common stock

 

103,538

 

(88,911)

 

 

 

1

 

 

(1)

 

 

 

 

900

 

 

 

 

 

 

(117)

 

 

783

 

Net excess tax benefit (detriment) from equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

(48)

 

 

 

 

 

 

 

 

(48)

 

Other

 

 

 

 

 

 

 

 

 

 

 

766

 

 

 

 

 

 

 

 

766

 

Balance as of September 30, 2016

 

20,894,035

 

31,138,193

 

(361,748)

 

$

209

 

$

311

 

$

(10,237)

 

$

256,531

 

$

(37,596)

 

$

(444)

 

$

53,750

 

$

262,524

 

Balance as of January 1, 2015

 

19,770,893

 

31,621,542

 

 

$

198

 

$

316

 

$

 

$

136,896

 

$

(24,118)

 

$

85

 

$

61,008

 

$

174,385

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

22,557

 

 

 

 

58,889

 

 

81,446

 

Equity-based compensation

 

84,841

 

(5,412)

 

 

 

1

 

 

 

 

 

 

30,479

 

 

 

 

 

 

2,857

 

 

33,337

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19)

 

 

2

 

 

(17)

 

Dividends ($0.70 per share of Class A Common Stock) and distributions

 

 

 

 

 

 

 

 

 

 

 

2,732

 

 

(16,792)

 

 

 

 

(50,334)

 

 

(64,394)

 

Treasury stock purchases

 

 

 

(242,619)

 

 

 

 

 

 

(7,006)

 

 

 

 

 

 

 

 

 

 

(7,006)

 

Class A Partnership Units and other equity purchased or converted into Class A Common Stock

 

545,115

 

(257,401)

 

 

 

5

 

 

(2)

 

 

 

 

5,112

 

 

 

 

 

 

(727)

 

 

4,388

 

Net excess tax benefit from equity- based compensation

 

 

 

 

 

 

 

 

 

 

 

435

 

 

 

 

 

 

 

 

435

 

Balance as of September 30, 2015

 

20,400,849

 

31,358,729

 

(242,619)

 

$

204

 

$

314

 

$

(7,006)

 

$

175,654

 

$

(18,353)

 

$

66

 

$

71,695

 

$

222,574

 

See notes to the condensed consolidated financial statements (unaudited).

 

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Table of Contents

Moelis & Company

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(dollars in thousands)

 

1. ORGANIZATION AND BASIS OF PRESENTATION

Moelis & Company and its consolidated subsidiaries (the “Company,” “we,” “our,” or “us”) is a leading global investment bank, incorporated in Delaware. Prior to the Company’s IPO in April 2014, the business operated as a Delaware limited partnership that commenced operations during 2007. Following Moelis & Company’s IPO, the operations are owned by Moelis & Company Group LP (“Group LP”), a U.S. Delaware limited partnership, and Group LP is controlled by Moelis & Company. Moelis & Company’s shareholders are entitled to receive a portion of Group LP’s economics through their direct ownership interests in shares of Class A common stock of Moelis & Company. The noncontrolling interest owners of Group LP (not Moelis & Company) receive economics of the operations primarily through their ownership interests in Group LP partnership units.

The Company’s activities as an investment banking advisory firm constitute a single business segment offering clients, including corporations, governments and financial sponsors, a range of advisory services with expertise across all major industries in mergers and acquisitions, recapitalizations and restructurings and other corporate finance matters.

Basis of Presentation—The condensed consolidated financial statements of Moelis & Company include its partnership interests in Group LP, its equity interest in the sole general partner of Group LP, Moelis & Company Group GP LLC (“Group GP”), and its interests in its subsidiaries. Moelis & Company will operate and control all of the business and affairs of Group LP and its operating entity subsidiaries indirectly through its equity interest in Group GP. The Company operates through the following subsidiaries:

· Moelis & Company LLC (“Moelis U.S.”), a Delaware limited liability company, a registered broker‑dealer with the U.S. Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

· Moelis & Company International Holdings LLC (“Moelis International”), a Delaware limited liability company, owns the following entities:

·

Moelis & Company UK LLP (“Moelis UK”), a limited liability partnership registered under the laws of England and Wales. In addition to the United Kingdom, Moelis UK maintains operations through the following branches:

·

Moelis & Company UK LLP, French Branch (French branch)

·

Moelis & Company Europe Limited, Frankfurt am Main (German branch)

·

Moelis & Company UK LLP, DIFC Branch (Dubai branch)

·

50% of Moelis Australia Holdings PTY Limited (“Moelis Australia Holdings”, or the “Australian JV”), a joint venture with Magic Trust Trustee PTY Limited (the “Trust”).

·

Moelis & Company Asia Limited (“Moelis Asia”), a limited company incorporated in Hong Kong licensed under the Hong Kong Securities and Futures Ordinance to provide financial advisory services. In addition to Hong Kong, Moelis Asia maintains operations in Beijing China through Hong Kong

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

Moelis & Company Asia Limited Beijing Representative Office, as well as having a wholly-owned Chinese subsidiary, Moelis & Company Consulting (Beijing) Company Limited.

·

Moelis & Company India Private Limited, a private limited company incorporated in Mumbai, India.

·

Moelis & Company Assessoria Financeira Ltda. (“Moelis Brazil”), a limited liability company incorporated in São Paulo, Brazil.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting—The Company prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As permitted by the interim reporting rules and regulations set forth by the SEC, the condensed consolidated financial statements presented exclude certain financial information and footnote disclosures normally included in audited financial statements prepared in accordance with U.S. GAAP. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to fairly present the accompanying unaudited condensed consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated and combined audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. 

Consolidation—The Company’s policy is to consolidate (i) entities, other than limited partnerships, in which it has a controlling financial interest, (ii) variable interest entities where the Company has a variable interest and is deemed to be the primary beneficiary and (iii) limited partnerships where the Company has ownership of the majority of voting interests. When the Company does not have a controlling interest in an entity, but exerts significant influence over the entity’s operating and financial decisions, the Company applies the equity method of accounting in which it records in earnings its share of income or losses of the entity. All intercompany balances and transactions with the Company’s subsidiaries have been eliminated in consolidation.

Use of Estimates—The preparation of condensed consolidated financial statements and related disclosures in conformity with U.S. 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 could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period in which they are determined to be necessary.

In preparing the condensed consolidated financial statements, management makes estimates and assumptions regarding:

·

the adequacy of the allowance for doubtful accounts;

·

the realization of deferred taxes;

·

the measurement of equity‑based compensation; and

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Table of Contents

Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

·

other matters that affect the reported amounts and disclosures of contingencies in the financial statements.

 

Cash and Cash Equivalents—Cash and cash equivalents include all short‑term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase.

As of September 30, 2016, the Company had cash equivalents of $154,161 (December 31, 2015: $178,872) invested primarily in government securities money market funds and U.S. Treasury Bills. Additionally, as of September 30, 2016, the Company had cash of $48,450 (December 31, 2015: $69,150) maintained in U.S. and non‑U.S. bank accounts, of which most bank account balances had little or no insurance coverage (most balances are held in U.S. and U.K. accounts which exceeded the U.S. Federal Deposit Insurance Corporation and U.K. Financial Services Compensation Scheme Coverage limits).

 

Restricted Cash—As of September 30, 2016 and December 31, 2015, the Company held cash of $769 and $819, respectively, in restricted collateral deposits primarily held by certain non-U.S. subsidiaries.

Receivables—The accompanying condensed consolidated statements of financial condition present accounts receivable balances net of allowance for doubtful accounts based on the Company’s assessment of the collectability of customer accounts.

The Company maintains an allowance for doubtful accounts that, in management’s opinion, provides for an adequate reserve to cover losses that may be incurred. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable, and the current economic conditions that may affect a customer’s ability to pay such amounts owed to the Company.

After concluding that a reserved accounts receivable is no longer collectible, the Company will charge‑off the receivable. This is determined based on several factors including the age of the accounts receivable and the credit worthiness of the customer. This has the effect of reducing both the gross receivable and the allowance for doubtful accounts.

 

Deferred Compensation—Deferred compensation costs represent arrangements with certain employees whereby cash payments are subject to a required period of service subsequent to payment by the Company. These amounts are charged to expenses over the period that the employee is required to provide services in order to vest in the payment.

Financial Instruments at Fair Value—Fair value is generally based on quoted prices, however if quoted market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations, price activity for equivalent instruments and valuation pricing models. The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument, the characteristics specific to the instrument and the state of the marketplace (including the existence and transparency of transactions between market participants). Financial instruments with readily‑available actively quoted prices or for which fair value can be measured from actively‑quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

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Table of Contents

Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1—Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the quoted price.

Level 2—Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3—Pricing inputs are unobservable for the instruments and include situations where there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company’s management.

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

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

 

Equity Method Investments—The Company accounts for its equity method investments under the equity method of accounting as the Company does not control these entities but has the ability to exercise significant influence. The amounts recorded on the condensed consolidated financial statements of financial condition reflects the Company’s share of contributions made to, distributions received from, and the equity earnings and losses of, the investments. The Company reflects its share of gains and losses of the investment in income (loss) from equity method investments in the condensed consolidated statements of operations.

Equipment and Leasehold Improvements—Office equipment and furniture and fixtures are stated at cost less accumulated depreciation, which is determined using the straight‑line method over the estimated useful lives of the assets, ranging from three to seven years, respectively. Leasehold improvements are stated at cost less accumulated amortization, which is determined using the straight‑line method over the lesser of the term of the lease or the estimated useful life of the asset.

Major renewals and improvements are capitalized and minor replacements, maintenance and repairs are charged to expenses as incurred. Upon retirement or disposal of assets, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated statements of financial condition and any gain or loss is reflected in the condensed consolidated statements of operations.

 

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Table of Contents

Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

Deferred Tax Asset and Amount Due Pursuant to Tax Receivable Agreement—In conjunction with the IPO, the Company was treated for U.S. federal income tax purposes as having directly purchased Class A partnership units in Group LP from the existing unitholders. Additional Group LP Class A partnership units may be exchanged for shares of Class A common stock in the Company. The initial purchase and future exchanges are expected to result in an increase in the tax basis of Group LP’s assets attributable to the Company’s interest in Group LP. These increases in the tax basis of Group LP’s assets attributable to the Company’s interest in Group LP would not have been available but for the initial purchase and future exchanges. Such increases in tax basis are likely to increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of income tax the Company would otherwise be required to pay in the future. As a result, the Company records a deferred tax asset for such increase in tax basis.

The Company has entered into a tax receivable agreement with its eligible Managing Directors that will provide for the payment by the Company to its eligible Managing Directors of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes as a result of (a) the increases in tax basis attributable to exchanges by its eligible Managing Directors and (b) tax benefits related to imputed interest deemed to be paid by the Company as a result of this tax receivable agreement. The Company expects to benefit from the remaining 15% of cash savings, if any, in income tax that it realizes and record any such estimated tax benefits as an increase to additional paid-in-capital. For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing the Company’s actual income tax liability to the amount of such taxes that it would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Group LP as a result of the exchanges and had it not entered into the tax receivable agreement. The term of the tax receivable agreement commenced upon consummation of the IPO and will continue until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement. The Company has recorded the estimated tax benefits related to the increase in tax basis and imputed interest as a result of the initial purchase and subsequent exchanges described above as a deferred tax asset in the condensed consolidated statements of financial condition. The amount due to its eligible Managing Directors related to the tax receivable agreement as a result of the initial purchase and subsequent exchanges described above is recorded as amount due pursuant to tax receivable agreement in the condensed consolidated statements of financial condition. The amounts recorded for the deferred tax asset and the liability for our obligations under the tax receivable agreement are estimates. Any adjustments to our estimates subsequent to their initial establishment will be included in net income (loss). Future exchanges of Class A partnership units in Group LP for Class A common shares in the Company will be accounted for in a similar manner.

 

Revenue and Expense Recognition—The Company recognizes revenues from providing advisory services when earned and collection is reasonably assured. Upfront fees are recognized over the estimated period that the related services are performed. Transaction‑related fees are recognized when all services for a transaction have been provided, specified conditions have been met and the transaction closes. Underwriting revenues are recognized when the offering is deemed complete and is presented net of related expenses. Deferred revenues are recorded for fees received that have not yet been earned. Expenses are reflected on the condensed consolidated statements of operations, net of client reimbursements. Reimbursable expenses billed to clients totaled $4,051 and $3,639 for the three months ended September 30, 2016 and 2015, respectively, and $11,445 and $9,510 for the nine months ended September 30, 2016 and 2015, respectively.

Equity‑based Compensation—The Company recognizes the cost of employee services received in exchange for an equity instrument award. The cost is based on its grant-date fair value based on quoted market prices at the time of grant amortized over the service period required by the award’s vesting terms. The Company records as treasury stock shares repurchased from its employees for the purpose of settling tax liabilities incurred upon the vesting of restricted

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

stock units (“RSUs”). The Company records dividends in kind, net of forfeitures, on outstanding RSUs as a dividend payment and a charge to equity. Dividends in kind on RSUs are subject to the same vesting conditions as the underlying RSUs on which they were accrued. Dividends in kind will be forfeited if the award does not vest.

For the purposes of calculating diluted net income (loss) per share to holders of Class A common stock, unvested service‑based awards are included in the diluted weighted average shares of Class A common stock outstanding using the treasury stock method. See Note 7 for further discussion.

The Company generally permits a retiring employee to retain and not forfeit certain qualifying incentive RSUs granted during employment if at retirement the employee (i) is at least 54 years old and (ii) has provided at least 8 consecutive years of service to the Company. Any such RSUs will continue to vest on their applicable vesting schedule, subject to noncompetition and other terms. Over time a greater number of employees may become retirement eligible and the related requisite service period over which we will expense these awards will be shorter than the stated vesting period. Any unvested RSUs prior to meeting the stated requisite service period or retirement eligibility date are eligible to receive dividends in kind; however, the right to dividends in kind will be forfeited if the underlying award does not vest.

 

Income Taxes—The Company accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”), which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in which the differences are expected to reverse. Such net tax effects on temporary differences are reflected on the Company’s condensed consolidated statements of financial condition as deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more‑likely‑than‑not that some portion or all of the deferred tax assets will not be realized.

ASC 740‑10 prescribes a two‑step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. For the three and nine months ended September 30, 2016 and 2015, no unrecognized tax benefit was recorded. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. The Company reports income tax‑related interest and penalties relating to uncertain tax positions, if applicable, as a component of income tax expense. For the three and nine months ended September 30, 2016 and 2015, no such amounts were recorded.

Foreign Currency Translation—Assets and liabilities held in non‑U.S. dollar denominated (functional) currencies are translated into U.S. dollars at exchange rates in effect at the end of the reporting period. Revenues and expenses are translated at average exchange rates during the reporting period. A charge or credit is recorded to other comprehensive income to reflect the translation of these amounts to the extent the non‑U.S. currency is designated the functional currency of the subsidiary. Non‑functional currency related transaction gains and losses are immediately recorded in the condensed consolidated statements of operations.

 

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 requires a company to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for services provided. The amendment requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which provides amendments that defer the effective date of ASU 2014-09 by one year. In March and April 2016, the FASB issued ASU No. 2016-08 and ASU No. 2016-10, respectively, both entitled, “Revenue from Contracts with Customers”. The amendments provide clarification on the implementation guidance for principal versus agent considerations and for identifying performance obligations and licensing in Topic 606, but the updates do not change the core principles of the codification. Similarly, in May 2016 the FASB issued ASU 2016-12 to modify narrow aspects of Topic 606, but not the core principles. The amendments in these updates are effective either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption, during interim and annual periods beginning after December 15, 2017, with early adoption permitted beginning after December 15, 2016. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 enhances the reporting model for financial instruments by addressing certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. Key provisions require equity investments with readily determinable fair values (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. In addition, the exit price notion must be used when measuring the fair value of financial instruments for disclosure purposes. ASU 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently assessing the impact the adoption of ASU 2016-01 will have on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments will retain lease classifications, distinguishing finance leases from operating leases, using criteria that is substantially similar for distinguishing capital leases from operating leases in previous guidance. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, “Investments—Equity Method and Joint Ventures” (“ASU 2016-07”). ASU 2016-07 simplifies the accounting for investments that become qualified for the equity method of accounting as a result of an increase in the level of ownership or degree of influence by eliminating the requirement of adjusting the investment, results of operations and retained earnings retroactively as if the equity method had been in effect during all previous periods. ASU 2016-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU 2016-07 will not have a material impact on the Company’s condensed consolidated financial statements.

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation” (“ASU 2016-09”). ASU 2016-09 simplifies the accounting for share-based payment awards to employees. The amendments in the update affect several aspects of Topic 718, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-09 will have on its condensed consolidated financial statements.

In August 2016, the FASB issues ASU No. 2016-15, “Statement of Cash Flows—Classification of Certain Cash Receipts and Cash and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides more standardized guidance to improve consistency surrounding the classification of certain cash payments and receipts between the operating, investing, and financing sections of the statement of cash flows. These transactions include the settlement of certain debt instruments, distributions received from equity-method investees and other transactions. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-15 will have on its condensed consolidation financial statements.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 provides clearer guidance related to current and deferred income taxes driven by intra-entity asset transfers. Specifically, this ASU states that an entity should recognize the income tax consequences of intra-entity transfers of assets other than inventory when they occur whereas in the past, certain entities did not recognize these impacts until the asset was sold to a third party. ASU 2016-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-16 will have on its condensed consolidation financial statements.

4. EQUITY METHOD INVESTMENTS

Investment in Joint Venture

On April 1, 2010, the Company entered into a 50‑50 joint venture in Moelis Australia Holdings, investing a combination of cash and certain net assets of its wholly‑owned subsidiary, Moelis Australia, in exchange for its interests. The remaining 50% is owned by an Australian trust established by and for the benefit of Moelis Australia senior executives.

For the three months ended September 30, 2016 and 2015, income of $1,571 and $163 was recorded on this investment, respectively, and for the nine months ended September 30, 2016 and 2015, income of $2,176 and $442 was recorded on this investment, respectively.

Other Equity Method Investment

In June 2014, the Company made an investment of $265 into a general partner entity which invests third-party funds and is controlled by a related party, Moelis Asset Management LP. The Company has determined that it should account for this investment as an equity method investment on its condensed consolidated financial statements. For the three months ended September 30, 2016 and 2015, a loss of $9 and income of $287 was recorded on this investment,

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

respectively, and for the nine months ended September 30, 2016 and 2015, $1,721 and $3,068 of income was recorded on this investment, respectively.

During the nine months ended September 30, 2016 and 2015, the Company received cash distributions from this entity in the amount of $813 and $2,694, respectively.

5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements, net consist of the following:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2016

 

2015

 

Office equipment

 

$

12,449

 

$

11,193

 

Furniture and fixtures

 

 

3,259

 

 

2,916

 

Leasehold improvements

 

 

8,049

 

 

7,073

 

Total

 

 

23,757

 

 

21,182

 

Less accumulated depreciation and amortization

 

 

(14,678)

 

 

(12,484)

 

Equipment and leasehold improvements, net

 

$

9,079

 

$

8,698

 

Depreciation and amortization expenses for fixed assets totaled $817 and $646 for the three months ended September 30, 2016 and 2015, respectively, and $2,359 and $1,954 for the nine months ended September 30, 2016 and 2015, respectively.

6. FAIR VALUE MEASUREMENTS

The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1—Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the quoted price.

Level 2—Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3—Pricing inputs are unobservable for the instruments and include situations in which there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company’s management.

The estimated fair values of government securities money markets and U.S. Treasury Bills as of September 30, 2016 and December 31, 2015 are based on quoted prices for recent trading activity in identical or similar instruments.

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

The Company generally invests in U.S. Treasury Bills with maturities of less than twelve months. See Note 2 for further information on the Company’s fair value hierarchy.

In 2015 the Company received convertible notes as compensation for its services and classified this investment as available-for-sale. The convertible notes did not have readily determinable market values and were categorized accordingly as level 3. The fair value of the convertible notes was recorded at the initial transaction price at which such notes were purchased by third party investors in the capital market transaction on which the Company provided services. In July 2016, the issuer of the convertible notes consummated its initial public offering and the notes converted into common stock of the issuer at a discounted conversion rate equal to the principal value of the notes plus accrued interest. The common stock is classified as available-for-sale and the subsequent measurement of its fair value is recorded based upon the quoted price in its active market. Unrealized changes in fair value are reflected in other comprehensive income in the condensed consolidated financial statements.

The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills

 

$

112,485

 

$

42,487

 

$

69,998

 

$

 

Government securities money market

 

 

41,676

 

 

 

 

41,676

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills

 

 

32,976

 

 

 —

 

 

32,976

 

 

 

Common stock

 

 

530

 

 

530

 

 

 

 

 —

 

Total financial assets

 

$

187,667

 

$

43,017

 

$

144,650

 

$

 —

 

 

The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills

 

$

100,996

 

$

71,998

 

$

28,998

 

$

 —

 

Government securities money market

 

 

77,876

 

 

 

 

77,876

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills

 

 

37,989

 

 

19,990

 

 

17,999

 

 

 —

 

Convertible notes

 

 

635

 

 

 —

 

 

 

 

635

 

Total financial assets

 

$

217,496

 

$

91,988

 

$

124,873

 

$

635

 

 

The Company’s methodology for reclassifications impacting the fair value hierarchy is that transfers in/out of the respective category are reported at fair value as of the beginning of the period in which the reclassification occurred. The changes to the Company’s investment classified as level 3 are as follows for the nine months ended September 30, 2016.

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

    

Convertible notes

 

January 1, 2016

 

$

635

 

Unrealized gains (losses) included in accumulated other comprehensive income

 

 

22

 

March 31, 2016

 

 

657

 

Unrealized gains (losses) included in accumulated other comprehensive income

 

 

21

 

June 30, 2016

 

 

678

 

Transfer out of level 3 due to conversion of convertible notes to common stock

 

 

(678)

 

September 30, 2016

 

$

 —

 

During the nine months ended September 30, 2016, convertible notes held by the Company which were classified as level 3 were converted into common stock due to the occurrence of an initial public offering described above. As a result, the convertible notes classified as level 3 were converted to common stock classified as level 1.

At the end of the reporting period, the Company reviews U.S. treasury bills held to determine whether the securities are of the most recent issuance of that security with the same maturity (referred to as “on-the-run”, which is the most liquid version of the maturity band). If a U.S. treasury bill held at the end of the reporting period was from the most recent issuance it is classified as level 1, otherwise it is referred to as “off-the-run” and is classified as level 2. During the three and nine months ended September 30, 2016, there were transfers of $7,984 from level 1 to level 2 related to U.S. treasury bills that were initially acquired as on-the-run and classified as level 1, but subsequently transferred to level 2 as a result of becoming off-the-run. There were no transfers between level 1, level 2 or level 3 during the three or nine months ended September 30, 2015.

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Moelis & Company

Notes to the Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(dollars in thousands)

 

7. NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS

The calculations of basic and diluted net income (loss) per share attributable to holders of shares of Class A common stock for the three and nine months ended September 30, 2016 and 2015 are presented below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

(dollars in thousands, except per share amounts)

    

2016

    

2015

    

2016

    

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to holders of shares of Class A common stock—basic

 

$

9,489

 

$

10,090

 

$

23,352

 

$

22,557

 

Add (deduct) dilutive effect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests related to Class A partnership units

 

 

 

(a)  

 

 

(a)

 

 

(a)  

 

 

(a)

Net income (loss) attributable to holders of shares of Class A common stock—diluted

 

$

9,489

 

$

10,090

 

$

23,352

 

$

22,557

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding—basic

 

 

20,926,745

 

 

20,184,835

 

 

20,807,189

 

 

19,919,675

 

Add (deduct) dilutive effect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests related to Class A partnership units

 

 

 

(a)  

 

 

(a)

 

 

(a)  

 

 

(a)

Weighted average number of incremental shares issuable from unvested restricted stock, RSUs and stock options, as calculated using the treasury stock method

 

 

3,374,318

(b)  

 

1,281,186

(b)

 

2,709,050

(b)  

 

1,185,848

(b)

Weighted average shares of Class A common stock outstanding—diluted

 

 

24,301,063

 

 

21,466,021

 

 

23,516,239

 

 

21,105,523

 

Net income (loss) per share attributable to holders of shares of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.45

 

$

0.50

 

$

1.12

 

$

1.13

 

Diluted

 

$

0.39

 

$

0.47

 

$

0.99

 

$

1.07

 


We have not included the impact of Class B common stock because these shares are entitled to an insignificant amount of economic participation.

(a)Class A partnership units may be exchanged for Moelis & Company Class A common stock on a one‑for‑one basis, subject to applicable lock‑up, vesting and transfer restrictions. If all Class A partnership units were to be exchanged for Class A common stock, fully diluted Class A common stock outstanding would be 58,000,602 and 55,398,692 for the three months ended September 30, 2016 and 2015, respectively, and 57,335,334 and 55,303,354 for the nine months ended September 30, 2016 and 2015, respectively. In computing the dilutive effect, if any, that the aforementioned exchange would have on net income (loss) per share, net income (loss) available to holders of Class A common stock would be adjusted due to the elimination of the noncontrolling interests in consolidated entities associated with the Group LP Class A partnership units (including any tax