Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

mc-10q_20180630.htm

 

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 June 30, 2018

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

 

46-4500216

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

399 Park Avenue, 5th Floor, New York NY

 

10022

(Address of principal executive offices)

 

(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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer 

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

 

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

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

As of July 13, 2018, there were 41,000,568 shares of Class A common stock, par value $0.01 per share, and 15,178,575 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

 

3

Item 2.

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

 

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

35

Item 4.

Controls and Procedures

 

35

Part II. Other Information

 

 

Item 1.

Legal Proceedings

 

36

Item 1A.

Risk Factors

 

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

Item 3.

Defaults Upon Senior Securities

 

36

Item 4.

Mine Safety Disclosures

 

36

Item 5.

Other Information

 

36

Item 6.

Exhibits

 

37

Signatures

 

 

38

 

 

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 June 30, 2018 and December 31, 2017

 

4

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017

 

5

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017

 

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

 

7

Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2018 and 2017

 

8

Notes to Condensed Consolidated Financial Statements  

 

9

 

3


Table of Contents

 

Moelis & Company

Condensed Consolidated Statements of Financial Condition

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

132,868

 

 

$

 

213,191

 

Restricted cash

 

 

 

556

 

 

 

 

703

 

Receivables:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts of $2,492 and $1,433 as of June 30, 2018 and December 31, 2017, respectively

 

 

 

63,790

 

 

 

 

56,725

 

Other receivables

 

 

 

62,796

 

 

 

 

4,868

 

Total receivables

 

 

 

126,586

 

 

 

 

61,593

 

Deferred compensation

 

 

 

9,984

 

 

 

 

8,848

 

Investments at fair value (cost basis $58,933 and $96,351 as of June 30, 2018 and December 31, 2017, respectively)

 

 

 

58,611

 

 

 

 

96,108

 

Equity method investments

 

 

 

59,225

 

 

 

 

58,848

 

Equipment and leasehold improvements, net

 

 

 

11,395

 

 

 

 

10,458

 

Deferred tax asset

 

 

 

313,923

 

 

 

 

234,000

 

Prepaid expenses and other assets

 

 

 

14,328

 

 

 

 

15,319

 

Total assets

 

$

 

727,476

 

 

$

 

699,068

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

Compensation payable

 

$

 

113,144

 

 

$

 

145,152

 

Accounts payable and accrued expenses

 

 

 

6,228

 

 

 

 

18,323

 

Amount due pursuant to tax receivable agreement

 

 

 

243,997

 

 

 

 

177,148

 

Deferred revenue

 

 

 

3,935

 

 

 

 

4,948

 

Other liabilities

 

 

 

7,061

 

 

 

 

9,241

 

Total liabilities

 

 

 

374,365

 

 

 

 

354,812

 

Commitments and Contingencies (See Note 12)

 

 

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 42,176,435 issued and 40,993,850 outstanding at June 30, 2018; 1,000,000,000 authorized, 34,163,042 issued and 33,455,626 outstanding at December 31, 2017)

 

 

 

422

 

 

 

 

342

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 15,178,575 issued and outstanding at June 30, 2018; 1,000,000,000 authorized, 19,912,230 issued and outstanding at December 31, 2017)

 

 

 

152

 

 

 

 

199

 

Treasury stock, at cost; 1,182,585 and 707,416 shares as of June 30, 2018 and December 31, 2017, respectively

 

 

 

(47,360

)

 

 

 

(23,188

)

Additional paid-in-capital

 

 

 

605,897

 

 

 

 

487,163

 

Retained earnings (accumulated deficit)

 

 

 

(182,256

)

 

 

 

(139,918

)

Accumulated other comprehensive income (loss)

 

 

 

457

 

 

 

 

352

 

Total Moelis & Company equity

 

 

 

377,312

 

 

 

 

324,950

 

Noncontrolling interests

 

 

 

(24,201

)

 

 

 

19,306

 

Total equity

 

 

 

353,111

 

 

 

 

344,256

 

Total liabilities and equity

 

$

 

727,476

 

 

$

 

699,068

 

 

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

4


Table of Contents

 

Moelis & Company

Condensed Consolidated Statements of Operations

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

 

220,405

 

 

$

 

172,149

 

 

$

 

439,823

 

 

$

 

345,407

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

 

128,109

 

 

 

 

100,808

 

 

 

 

255,286

 

 

 

 

202,534

 

Occupancy

 

 

 

4,550

 

 

 

 

4,097

 

 

 

 

9,133

 

 

 

 

8,277

 

Professional fees

 

 

 

6,574

 

 

 

 

3,939

 

 

 

 

12,258

 

 

 

 

9,180

 

Communication, technology and information services

 

 

 

7,317

 

 

 

 

6,738

 

 

 

 

14,450

 

 

 

 

12,209

 

Travel and related expenses

 

 

 

10,851

 

 

 

 

8,105

 

 

 

 

22,411

 

 

 

 

14,696

 

Depreciation and amortization

 

 

 

1,100

 

 

 

 

822

 

 

 

 

2,155

 

 

 

 

1,679

 

Other expenses

 

 

 

6,259

 

 

 

 

4,932

 

 

 

 

13,416

 

 

 

 

11,090

 

Total expenses

 

 

 

164,760

 

 

 

 

129,441

 

 

 

 

329,109

 

 

 

 

259,665

 

Operating income (loss)

 

 

 

55,645

 

 

 

 

42,708

 

 

 

 

110,714

 

 

 

 

85,742

 

Other income and (expenses)

 

 

 

1,286

 

 

 

 

17,695

 

 

 

 

1,873

 

 

 

 

17,933

 

Income (loss) from equity method investments

 

 

 

2,226

 

 

 

 

(1,330

)

 

 

 

3,114

 

 

 

 

1,774

 

Income (loss) before income taxes

 

 

 

59,157

 

 

 

 

59,073

 

 

 

 

115,701

 

 

 

 

105,449

 

Provision for income taxes

 

 

 

6,027

 

 

 

 

9,549

 

 

 

 

8,590

 

 

 

 

16,546

 

Net income (loss)

 

 

 

53,130

 

 

 

 

49,524

 

 

 

 

107,111

 

 

 

 

88,903

 

Net income (loss) attributable to noncontrolling interests

 

 

 

17,440

 

 

 

 

29,794

 

 

 

 

38,096

 

 

 

 

53,895

 

Net income (loss) attributable to Moelis & Company

 

$

 

35,690

 

 

$

 

19,730

 

 

$

 

69,015

 

 

$

 

35,008

 

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

41,750,396

 

 

 

 

28,165,552

 

 

 

 

38,938,952

 

 

 

 

27,325,145

 

Diluted

 

 

 

49,280,107

 

 

 

 

34,374,882

 

 

 

 

46,991,421

 

 

 

 

33,752,139

 

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

   common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.85

 

 

$

 

0.70

 

 

$

 

1.77

 

 

$

 

1.28

 

Diluted

 

$

 

0.72

 

 

$

 

0.57

 

 

$

 

1.47

 

 

$

 

1.04

 

Dividends declared per share of Class A common stock

 

$

 

0.47

 

 

$

 

1.37

 

 

$

 

2.44

 

 

$

 

1.74

 

 

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

5


Table of Contents

 

Moelis & Company

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

 

53,130

 

 

$

 

49,524

 

 

$

 

107,111

 

 

$

 

88,903

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

(105

)

Foreign currency translation adjustment, net of tax

 

 

 

(1,843

)

 

 

 

738

 

 

 

 

(164

)

 

 

 

1,387

 

Other comprehensive income (loss)

 

 

 

(1,843

)

 

 

 

758

 

 

 

 

(164

)

 

 

 

1,282

 

Comprehensive income (loss)

 

 

 

51,287

 

 

 

 

50,282

 

 

 

 

106,947

 

 

 

 

90,185

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

16,878

 

 

 

 

30,181

 

 

 

 

38,144

 

 

 

 

54,560

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

 

34,409

 

 

$

 

20,101

 

 

$

 

68,803

 

 

$

 

35,625

 

 

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

6


Table of Contents

 

Moelis & Company

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 

107,111

 

 

$

 

88,903

 

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

 

 

 

 

 

 

 

 

 

 

Bad debt expense

 

 

 

1,208

 

 

 

 

431

 

Depreciation and amortization

 

 

 

2,155

 

 

 

 

1,679

 

(Income) loss from equity method investments

 

 

 

(3,114

)

 

 

 

(1,774

)

Equity-based compensation

 

 

 

58,335

 

 

 

 

49,729

 

Deferred tax provision

 

 

 

8,568

 

 

 

 

8,116

 

Gain on equity method investment

 

 

 

 

 

 

 

(17,450

)

Other

 

 

 

3,688

 

 

 

 

3,027

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(8,475

)

 

 

 

(5,067

)

Other receivables

 

 

 

(54,549

)

 

 

 

(2,498

)

Prepaid expenses and other assets

 

 

 

933

 

 

 

 

(6,497

)

Deferred compensation

 

 

 

(1,160

)

 

 

 

(535

)

Compensation payable

 

 

 

(32,227

)

 

 

 

(47,168

)

Accounts payable and accrued expenses

 

 

 

(12,012

)

 

 

 

(9,677

)

Deferred revenue

 

 

 

(998

)

 

 

 

(86

)

Dividends received

 

 

 

2,737

 

 

 

 

11,672

 

Other liabilities

 

 

 

(2,205

)

 

 

 

(182

)

Net cash provided by (used in) operating activities

 

 

 

69,995

 

 

 

 

72,623

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

(55,479

)

 

 

 

(98,319

)

Proceeds from sales of investments

 

 

 

92,310

 

 

 

 

53,000

 

Note payments received from employees

 

 

 

193

 

 

 

 

403

 

Notes issued to employees

 

 

 

 

 

 

 

(400

)

Purchase of equipment and leasehold improvements

 

 

 

(3,133

)

 

 

 

(3,013

)

Net cash provided by (used in) investing activities

 

 

 

33,891

 

 

 

 

(48,329

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Dividends and distributions

 

 

 

(167,145

)

 

 

 

(155,304

)

Payments under tax receivable agreement

 

 

 

 

 

 

 

(5,032

)

Proceeds from exercise of stock options

 

 

 

6,695

 

 

 

 

4,650

 

Payments to settle employee tax obligations on share-based awards

 

 

 

(24,172

)

 

 

 

(9,266

)

Class A partnership units and other equity purchased

 

 

 

(135

)

 

 

 

(101

)

Net cash provided by (used in) financing activities

 

 

 

(184,757

)

 

 

 

(165,053

)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

 

 

 

401

 

 

 

 

1,682

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

 

(80,470

)

 

 

 

(139,077

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

 

213,894

 

 

 

 

319,585

 

Cash, cash equivalents, and restricted cash, end of period

 

$

 

133,424

 

 

$

 

180,508

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

14,185

 

 

$

 

20,352

 

Dividends paid, declared in the prior year

 

$

 

 

 

$

 

68,066

 

Other non-cash activity

 

 

 

 

 

 

 

 

 

 

Dividend equivalents issued

 

$

 

24,767

 

 

$

 

17,176

 

Dividend declared not paid

 

$

 

 

 

$

 

55,900

 

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

 

$

 

22,174

 

 

$

 

23,557

 

Cumulative Effect Adjustment upon Adoption of ASU 2016-09

 

$

 

 

 

$

 

658

 

Cumulative Effect Adjustment upon Adoption of ASU 2014-09

 

$

 

3,155

 

 

$

 

 

Exercised stock option proceeds receivable

 

$

 

24

 

 

$

 

647

 

Forfeiture of fully-vested Group LP units or other equity units

 

$

 

677

 

 

$

 

36

 

 

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

 

 

7


Table of Contents

 

Moelis & Company

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

(dollars in thousands)

 

 

 

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, 2018

 

 

34,163,042

 

 

 

19,912,230

 

 

 

(707,416

)

 

$

 

342

 

 

$

 

199

 

 

$

 

(23,188

)

 

$

 

487,163

 

 

$

 

(139,918

)

 

$

 

352

 

 

$

 

19,306

 

 

$

 

344,256

 

Cumulative Effect Adjustment upon Adoption of

   ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,155

 

 

 

 

 

 

 

 

 

 

 

 

3,155

 

Cumulative Effect Adjustment upon Adoption of

   ASU 2016-01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(317

)

 

 

 

317

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2018, as adjusted

 

 

34,163,042

 

 

 

19,912,230

 

 

 

(707,416

)

 

$

 

342

 

 

$

 

199

 

 

$

 

(23,188

)

 

$

 

487,163

 

 

$

 

(137,080

)

 

$

 

669

 

 

$

 

19,306

 

 

$

 

347,411

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,015

 

 

 

 

 

 

 

 

38,096

 

 

 

 

107,111

 

Equity-based compensation

 

 

2,962,076

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

57,603

 

 

 

 

 

 

 

 

 

 

 

 

702

 

 

 

 

58,335

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(212

)

 

 

 

48

 

 

 

 

(164

)

Dividends declared ($2.44 per share of Class A Common Stock)

   and distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,767

 

 

 

 

(114,191

)

 

 

 

 

 

 

 

(77,721

)

 

 

 

(167,145

)

Treasury Stock Purchases

 

 

 

 

 

 

 

 

(475,169

)

 

 

 

 

 

 

 

 

 

 

 

(24,172

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,172

)

Exercise of Stock options

 

 

343,780

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

6,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,695

 

Issuance of Class A common stock and cancellation of

   Class B common stock in connection with offerings

   and other exchanges

 

 

4,707,537

 

 

 

(4,707,537

)

 

 

 

 

 

 

47

 

 

 

 

(47

)

 

 

 

 

 

 

 

25,994

 

 

 

 

 

 

 

 

 

 

 

 

(3,955

)

 

 

 

22,039

 

Equity-based payments to non-employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,678

 

Other

 

 

 

 

 

(26,118

)