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Section 1: 10-Q (10-Q)

mc-10q_20180930.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 September 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   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

 

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 October 17, 2018, there were 45,740,441 shares of Class A common stock, par value $0.01 per share, and 10,493,358 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 September 30, 2018 and December 31, 2017

 

4

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017

 

5

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

 

6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017

 

7

Condensed Consolidated Statements of Changes in Equity for the nine months ended September 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)

 

 

September 30,

 

 

December 31,

 

 

 

 

2018

 

 

2017

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

86,894

 

 

$

 

213,191

 

 

Restricted cash

 

 

 

774

 

 

 

 

703

 

 

Receivables:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts of $1,516 and $1,433 as of September 30, 2018 and December 31, 2017, respectively

 

 

 

54,679

 

 

 

 

56,725

 

 

Accrued and other receivables

 

 

 

26,845

 

 

 

 

4,868

 

 

Total receivables

 

 

 

81,524

 

 

 

 

61,593

 

 

Deferred compensation

 

 

 

9,682

 

 

 

 

8,848

 

 

Investments at fair value (cost basis $144,803 and $96,351 as of September 30, 2018 and December 31, 2017, respectively)

 

 

 

144,937

 

 

 

 

96,108

 

 

Equity method investments

 

 

 

59,752

 

 

 

 

58,848

 

 

Equipment and leasehold improvements, net

 

 

 

12,004

 

 

 

 

10,458

 

 

Deferred tax asset

 

 

 

412,897

 

 

 

 

234,000

 

 

Prepaid expenses and other assets

 

 

 

14,555

 

 

 

 

15,319

 

 

Total assets

 

$

 

823,019

 

 

$

 

699,068

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Compensation payable

 

$

 

142,290

 

 

$

 

145,152

 

 

Accounts payable and accrued expenses

 

 

 

16,902

 

 

 

 

18,323

 

 

Amount due pursuant to tax receivable agreement

 

 

 

323,226

 

 

 

 

177,148

 

 

Deferred revenue

 

 

 

6,580

 

 

 

 

4,948

 

 

Other liabilities

 

 

 

7,076

 

 

 

 

9,241

 

 

Total liabilities

 

 

 

496,074

 

 

 

 

354,812

 

 

Commitments and Contingencies (See Note 12)

 

 

 

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 46,908,723 issued and 45,717,246 outstanding at September 30, 2018; 1,000,000,000 authorized, 34,163,042 issued and 33,455,626 outstanding at December 31, 2017)

 

 

 

469

 

 

 

 

342

 

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 10,493,358 issued and outstanding at September 30, 2018; 1,000,000,000 authorized, 19,912,230 issued and outstanding at December 31, 2017)

 

 

 

105

 

 

 

 

199

 

 

Treasury stock, at cost; 1,191,477 and 707,416 shares as of September 30, 2018 and December 31, 2017, respectively

 

 

 

(47,880

)

 

 

 

(23,188

)

 

Additional paid-in-capital

 

 

 

668,406

 

 

 

 

487,163

 

 

Retained earnings (accumulated deficit)

 

 

 

(250,594

)

 

 

 

(139,918

)

 

Accumulated other comprehensive income (loss)

 

 

 

(34

)

 

 

 

352

 

 

Total Moelis & Company equity

 

 

 

370,472

 

 

 

 

324,950

 

 

Noncontrolling interests

 

 

 

(43,527

)

 

 

 

19,306

 

 

Total equity

 

 

 

326,945

 

 

 

 

344,256

 

 

Total liabilities and equity

 

$

 

823,019

 

 

$

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

 

207,723

 

 

$

 

170,041

 

 

$

 

647,546

 

 

$

 

515,448

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

 

120,701

 

 

 

 

99,694

 

 

 

 

375,987

 

 

 

 

302,228

 

Occupancy

 

 

 

4,976

 

 

 

 

4,393

 

 

 

 

14,109

 

 

 

 

12,670

 

Professional fees

 

 

 

5,871

 

 

 

 

4,494

 

 

 

 

18,129

 

 

 

 

13,674

 

Communication, technology and information services

 

 

 

7,414

 

 

 

 

6,427

 

 

 

 

21,864

 

 

 

 

18,636

 

Travel and related expenses

 

 

 

9,385

 

 

 

 

7,294

 

 

 

 

31,796

 

 

 

 

21,990

 

Depreciation and amortization

 

 

 

1,135

 

 

 

 

891

 

 

 

 

3,290

 

 

 

 

2,570

 

Other expenses

 

 

 

5,329

 

 

 

 

6,969

 

 

 

 

18,745

 

 

 

 

18,059

 

Total expenses

 

 

 

154,811

 

 

 

 

130,162

 

 

 

 

483,920

 

 

 

 

389,827

 

Operating income (loss)

 

 

 

52,912

 

 

 

 

39,879

 

 

 

 

163,626

 

 

 

 

125,621

 

Other income and (expenses)

 

 

 

1,090

 

 

 

 

14,955

 

 

 

 

2,963

 

 

 

 

32,888

 

Income (loss) from equity method investments

 

 

 

527

 

 

 

 

2,791

 

 

 

 

3,641

 

 

 

 

4,565

 

Income (loss) before income taxes

 

 

 

54,529

 

 

 

 

57,625

 

 

 

 

170,230

 

 

 

 

163,074

 

Provision for income taxes

 

 

 

9,641

 

 

 

 

14,354

 

 

 

 

18,231

 

 

 

 

30,900

 

Net income (loss)

 

 

 

44,888

 

 

 

 

43,271

 

 

 

 

151,999

 

 

 

 

132,174

 

Net income (loss) attributable to noncontrolling interests

 

 

 

12,439

 

 

 

 

24,066

 

 

 

 

50,535

 

 

 

 

77,961

 

Net income (loss) attributable to Moelis & Company

 

$

 

32,449

 

 

$

 

19,205

 

 

$

 

101,464

 

 

$

 

54,213

 

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

45,203,781

 

 

 

 

32,505,940

 

 

 

 

41,211,843

 

 

 

 

29,094,514

 

Diluted

 

 

 

53,141,198

 

 

 

 

39,784,633

 

 

 

 

49,173,904

 

 

 

 

35,872,847

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.72

 

 

$

 

0.59

 

 

$

 

2.46

 

 

$

 

1.86

 

Diluted

 

$

 

0.61

 

 

$

 

0.48

 

 

$

 

2.06

 

 

$

 

1.51

 

Dividends declared per share of Class A common stock

 

$

 

1.97

 

 

$

 

0.37

 

 

$

 

4.41

 

 

$

 

2.11

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Net income

 

$

 

44,888

 

 

$

 

43,271

 

 

$

 

151,999

 

 

$

 

132,174

 

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

(39

)

 

 

 

 

 

 

 

(144

)

 

Foreign currency translation adjustment, net of tax

 

 

 

(707

)

 

 

 

991

 

 

 

 

(871

)

 

 

 

2,378

 

 

Other comprehensive income (loss)

 

 

 

(707

)

 

 

 

952

 

 

 

 

(871

)

 

 

 

2,234

 

 

Comprehensive income (loss)

 

 

 

44,181

 

 

 

 

44,223

 

 

 

 

151,128

 

 

 

 

134,408

 

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

12,223

 

 

 

 

24,549

 

 

 

 

50,367

 

 

 

 

79,109

 

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

 

31,958

 

 

$

 

19,674

 

 

$

 

100,761

 

 

$

 

55,299

 

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 

151,999

 

 

$

 

132,174

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Bad debt expense

 

 

 

415

 

 

 

 

1,521

 

 

Depreciation and amortization

 

 

 

3,290

 

 

 

 

2,570

 

 

(Income) loss from equity method investments

 

 

 

(3,641

)

 

 

 

(4,565

)

 

Equity-based compensation

 

 

 

88,776

 

 

 

 

72,912

 

 

Deferred tax provision

 

 

 

6,333

 

 

 

 

13,746

 

 

Gain on equity method investment

 

 

 

 

 

 

 

(31,971

)

 

Other

 

 

 

4,656

 

 

 

 

4,067

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

1,526

 

 

 

 

(28,588

)

 

Accrued and other receivables

 

 

 

(18,724

)

 

 

 

(4,594

)

 

Prepaid expenses and other assets

 

 

 

636

 

 

 

 

(7,079

)

 

Deferred compensation

 

 

 

(870

)

 

 

 

(321

)

 

Compensation payable

 

 

 

(2,768

)

 

 

 

(21,644

)

 

Accounts payable and accrued expenses

 

 

 

(1,247

)

 

 

 

(4,864

)

 

Deferred revenue

 

 

 

1,640

 

 

 

 

876

 

 

Dividends received

 

 

 

2,737

 

 

 

 

11,672

 

 

Other liabilities

 

 

 

(2,168

)

 

 

 

(628

)

 

Net cash provided by (used in) operating activities

 

 

 

232,590

 

 

 

 

135,284

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

(148,027

)

 

 

 

(171,764

)

 

Proceeds from sales of investments

 

 

 

98,860

 

 

 

 

88,750

 

 

Note payments received from employees

 

 

 

366

 

 

 

 

705

 

 

Notes issued to employees

 

 

 

 

 

 

 

(400

)

 

Purchase of equipment and leasehold improvements

 

 

 

(4,888

)

 

 

 

(4,553

)

 

Net cash provided by (used in) investing activities

 

 

 

(53,689

)

 

 

 

(87,262

)

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

Dividends and distributions

 

 

 

(286,145

)

 

 

 

(232,284

)

 

Payments under tax receivable agreement

 

 

 

 

 

 

 

(5,032

)

 

Proceeds from exercise of stock options

 

 

 

6,781

 

 

 

 

5,571

 

 

Payments to settle employee tax obligations on share-based awards

 

 

 

(24,692

)

 

 

 

(9,832

)

 

Class A partnership units and other equity purchased

 

 

 

(293

)

 

 

 

(229

)

 

Net cash provided by (used in) financing activities

 

 

 

(304,349

)

 

 

 

(241,806

)

 

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

 

 

 

(778

)

 

 

 

2,588

 

 

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

 

 

 

(126,226

)

 

 

 

(191,196

)

 

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

 

 

 

213,894

 

 

 

 

319,585

 

 

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

 

$

 

87,668

 

 

$

 

128,389

 

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

15,850

 

 

$

 

26,196

 

 

Dividends paid, declared in the prior year

 

$

 

 

 

$

 

68,066

 

 

Other non-cash activity:

 

 

 

 

 

 

 

 

 

 

 

Dividend equivalents issued

 

$

 

44,727

 

 

$

 

20,911

 

 

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

 

$

 

39,987

 

 

$

 

52,240

 

 

Cumulative Effect Adjustment upon Adoption of ASU 2016-09

 

$

 

 

 

$

 

658

 

 

Cumulative Effect Adjustment upon Adoption of ASU 2014-09

 

$

 

3,155

 

 

$

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,464

 

 

 

 

 

 

 

 

50,535

 

 

 

 

151,999

 

Equity-based compensation

 

 

3,004,647

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

87,812

 

 

 

 

 

 

 

 

 

 

 

 

934

 

 

 

 

88,776

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(703

)

 

 

 

(168

)

 

 

 

(871

)

Dividends declared ($4.41 per share of Class A Common Stock) and distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,727

 

 

 

 

(214,978

)

 

 

 

 

 

 

 

(115,894

)

 

 

 

(286,145

)

Treasury Stock Purchases

 

 

 

 

 

 

 

 

(484,061

)

 

 

 

 

 

 

 

 

 

 

 

(24,692

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,692

)

Exercise of Stock options

 

 

348,280

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

6,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,781

 

Issuance of Class A common stock and cancellation of Class B common stock in connection with offerings and other exchanges

 

 

9,392,754

 

 

 

(9,392,754

)

 

 

 

 

 

 

94

 

 

 

 

(94

)

 

 

 

 

 

 

 

37,257

 

 

 

 

 

 

 

 

 

 

 

 

2,437

 

 

 

 

39,694

 

Equity-based payments to non-employees