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Section 1: 10-Q (10-Q)

mc-10q_20190331.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 March 31, 2019

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 April 17, 2019, there were 47,417,033 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

 

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

Controls and Procedures

 

33

Part II. Other Information

 

 

Item 1.

Legal Proceedings

 

34

Item 1A.

Risk Factors

 

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 3.

Defaults Upon Senior Securities

 

34

Item 4.

Mine Safety Disclosures

 

34

Item 5.

Other Information

 

34

Item 6.

Exhibits

 

35

Signatures

 

 

36

 

 

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 March 31, 2019 and December 31, 2018

 

4

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

 

5

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

 

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

7

Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2019 and 2018

 

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)

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

69,132

 

 

$

 

261,100

 

Restricted cash

 

 

 

349

 

 

 

 

671

 

Receivables:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts of $3,084 and $1,975 as of March 31, 2019 and December 31, 2018, respectively

 

 

 

44,425

 

 

 

 

54,412

 

Accrued and other receivables

 

 

 

10,599

 

 

 

 

14,199

 

Total receivables

 

 

 

55,024

 

 

 

 

68,611

 

Deferred compensation

 

 

 

11,421

 

 

 

 

8,788

 

Investments at fair value (cost basis $9,880 and $80,717 as of March 31, 2019 and December 31, 2018, respectively)

 

 

 

9,464

 

 

 

 

80,650

 

Right-of-use assets

 

 

 

54,385

 

 

 

 

 

Equity method investment

 

 

 

61,139

 

 

 

 

63,274

 

Equipment and leasehold improvements, net

 

 

 

13,509

 

 

 

 

12,731

 

Deferred tax asset

 

 

 

392,449

 

 

 

 

402,859

 

Prepaid expenses and other assets

 

 

 

14,818

 

 

 

 

15,691

 

Total assets

 

$

 

681,690

 

 

$

 

914,375

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

Compensation payable

 

$

 

11,869

 

 

$

 

197,741

 

Accounts payable and accrued expenses

 

 

 

1,419

 

 

 

 

19,784

 

Amount due pursuant to tax receivable agreement

 

 

 

311,246

 

 

 

 

311,246

 

Deferred revenue

 

 

 

10,145

 

 

 

 

7,074

 

Lease liabilities

 

 

 

59,333

 

 

 

 

 

Other liabilities

 

 

 

535

 

 

 

 

6,777

 

Total liabilities

 

 

 

394,547

 

 

 

 

542,622

 

Commitments and Contingencies (See Note 12)

 

 

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 49,457,698 issued and 47,414,787 outstanding at March 31, 2019; 1,000,000,000 authorized, 47,031,095 issued and 45,604,980 outstanding at December 31, 2018)

 

 

 

494

 

 

 

 

470

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 10,493,358 issued and outstanding at March 31, 2019; 1,000,000,000 authorized, 10,493,358 issued and outstanding at December 31, 2018)

 

 

 

105

 

 

 

 

105

 

Treasury stock, at cost; 2,042,911 and 1,426,115 shares as of March 31, 2019 and December 31, 2018, respectively

 

 

 

(83,631

)

 

 

 

(56,661

)

Additional paid-in-capital

 

 

 

756,349

 

 

 

 

697,938

 

Retained earnings (accumulated deficit)

 

 

 

(327,648

)

 

 

 

(237,782

)

Accumulated other comprehensive income (loss)

 

 

 

712

 

 

 

 

291

 

Total Moelis & Company equity

 

 

 

346,381

 

 

 

 

404,361

 

Noncontrolling interests

 

 

 

(59,238

)

 

 

 

(32,608

)

Total equity

 

 

 

287,143

 

 

 

 

371,753

 

Total liabilities and equity

 

$

 

681,690

 

 

$

 

914,375

 

 

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 March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

$

 

137,783

 

 

$

 

219,418

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

 

90,161

 

 

 

 

127,177

 

Occupancy

 

 

 

4,819

 

 

 

 

4,583

 

Professional fees

 

 

 

5,179

 

 

 

 

5,684

 

Communication, technology and information services

 

 

 

7,962

 

 

 

 

7,133

 

Travel and related expenses

 

 

 

11,497

 

 

 

 

11,560

 

Depreciation and amortization

 

 

 

1,155

 

 

 

 

1,055

 

Other expenses

 

 

 

7,381

 

 

 

 

7,157

 

Total expenses

 

 

 

128,154

 

 

 

 

164,349

 

Operating income (loss)

 

 

 

9,629

 

 

 

 

55,069

 

Other income and (expenses)

 

 

 

1,377

 

 

 

 

587

 

Income (loss) from equity method investments

 

 

 

713

 

 

 

 

888

 

Income (loss) before income taxes

 

 

 

11,719

 

 

 

 

56,544

 

Provision for income taxes

 

 

 

(4,458

)

 

 

 

2,563

 

Net income (loss)

 

 

 

16,177

 

 

 

 

53,981

 

Net income (loss) attributable to noncontrolling interests

 

 

 

2,607

 

 

 

 

20,656

 

Net income (loss) attributable to Moelis & Company

 

$

 

13,570

 

 

$

 

33,325

 

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

48,309,358

 

 

 

 

36,169,566

 

Diluted

 

 

 

55,108,335

 

 

 

 

44,596,534

 

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

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.28

 

 

$

 

0.92

 

Diluted

 

$

 

0.25

 

 

$

 

0.75

 

 

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 March 31,

 

 

 

2019

 

 

2018

 

Net income

 

$

 

16,177

 

 

$

 

53,981

 

Foreign currency translation adjustment, net of tax

 

 

 

540

 

 

 

 

1,679

 

Other comprehensive income (loss)

 

 

 

540

 

 

 

 

1,679

 

Comprehensive income (loss)

 

 

 

16,717

 

 

 

 

55,660

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

2,726

 

 

 

 

21,266

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

 

13,991

 

 

$

 

34,394

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 

16,177

 

 

$

 

53,981

 

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

 

 

 

 

 

 

 

 

 

 

Bad debt expense

 

 

 

1,288

 

 

 

 

671

 

Depreciation and amortization

 

 

 

1,155

 

 

 

 

1,055

 

(Income) loss from equity method investments

 

 

 

(713

)

 

 

 

(888

)

Equity-based compensation

 

 

 

38,886

 

 

 

 

32,244

 

Deferred tax provision

 

 

 

10,638

 

 

 

 

7,302

 

Other

 

 

 

297

 

 

 

 

2,603

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

8,720

 

 

 

 

11,444

 

Accrued and other receivables

 

 

 

3,626

 

 

 

 

(7,435

)

Prepaid expenses and other assets

 

 

 

(183

)

 

 

 

1,149

 

Deferred compensation

 

 

 

(2,616

)

 

 

 

(2,726

)

Compensation payable

 

 

 

(186,519

)

 

 

 

(89,487

)

Accounts payable and accrued expenses

 

 

 

(19,126

)

 

 

 

(1,963

)

Deferred revenue

 

 

 

3,071

 

 

 

 

(2,024

)

Dividends received

 

 

 

2,848

 

 

 

 

2,737

 

Other liabilities

 

 

 

105

 

 

 

 

(1,260

)

Net cash provided by (used in) operating activities

 

 

 

(122,346

)

 

 

 

7,403

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

(9,245

)

 

 

 

(7,972

)

Proceeds from sales of investments

 

 

 

80,559

 

 

 

 

75,310

 

Note payments received from employees

 

 

 

 

 

 

 

204

 

Purchase of equipment and leasehold improvements

 

 

 

(2,172

)

 

 

 

(1,059

)

Net cash provided by (used in) investing activities

 

 

 

69,142

 

 

 

 

66,483

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Dividends and distributions

 

 

 

(113,734

)

 

 

 

(137,029

)

Proceeds from exercise of stock options

 

 

 

492

 

 

 

 

365

 

Treasury Stock Purchases

 

 

 

(26,970

)

 

 

 

(20,789

)

Class A partnership units and other equity purchased

 

 

 

 

 

 

 

(135

)

Net cash provided by (used in) financing activities

 

 

 

(140,212

)

 

 

 

(157,588

)

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

 

 

 

1,126

 

 

 

 

1,396

 

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

 

 

 

(192,290

)

 

 

 

(82,306

)

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

 

 

 

261,771

 

 

 

 

213,894

 

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

 

$

 

69,481

 

 

$

 

131,588

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

11,895

 

 

$

 

11,466

 

Other non-cash activity

 

 

 

 

 

 

 

 

 

 

Dividend equivalents issued

 

$

 

19,484

 

 

$

 

20,379

 

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

 

$

 

240

 

 

$

 

20,434

 

Dividend declared not paid

 

$

 

657

 

 

$

 

 

Cumulative Effect Adjustment upon Adoption of ASU 2014-09

 

$

 

 

 

$

 

3,155

 

 

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, except 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, 2019

 

 

47,031,095

 

 

 

10,493,358

 

 

 

(1,426,115

)

 

$

 

470

 

 

$

 

105

 

 

$

 

(56,661

)

 

$

 

697,938

 

 

$

 

(237,782

)

 

$

 

291

 

 

$

 

(32,608

)

 

$

 

371,753

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,570

 

 

 

 

 

 

 

 

2,607

 

 

 

 

16,177

 

Equity-based compensation

 

 

2,397,164

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

38,753

 

 

 

 

 

 

 

 

 

 

 

 

109

 

 

 

 

38,886

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

421

 

 

 

 

119

 

 

 

 

540

 

Dividends declared ($1.75 per share of Class A Common Stock) and distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,484

 

 

 

 

(103,436

)

 

 

 

 

 

 

 

(30,439

)

 

 

 

(114,391

)

Treasury Stock Purchases

 

 

 

 

 

 

 

 

(616,796

)

 

 

 

 

 

 

 

 

 

 

 

(26,970

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,970

)

Exercise of Stock options

 

 

29,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

492

 

Equity-based payments to non-employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

416

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(734

)

 

 

 

 

 

 

 

 

 

 

 

974

 

 

 

 

240

 

Balance as of March 31, 2019

 

 

49,457,698

 

 

 

10,493,358

 

 

 

(2,042,911

)

 

$

 

494

 

 

$

 

105

 

 

$

 

(83,631

)

 

$

 

756,349

 

 

$

 

(327,648

)

 

$

 

712

 

 

$

 

(59,238

)

 

$

 

287,143

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,325

 

 

 

 

 

 

 

 

20,656

 

 

 

 

53,981

 

Equity-based compensation

 

 

2,210,079

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

31,764

 

 

 

 

 

 

 

 

 

 

 

 

458

 

 

 

 

32,244

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,069

 

 

 

 

610

 

 

 

 

1,679

 

Dividends declared ($1.97 per share of Class A Common Stock) and distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,379

 

 

 

 

(90,631

)

 

 

 

 

 

 

 

(66,777

)

 

 

 

(137,029

)

Treasury Stock Purchases

 

 

 

 

 

 

 

 

(414,327

)

 

 

 

 

 

 

 

 

 

 

 

(20,789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,789

)

Exercise of Stock options

 

 

18,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

365

 

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

 

 

4,689,295

 

 

 

(4,689,295

)

 

 

 

 

 

 

47

 

 

 

 

(47

)

 

 

 

 

 

 

 

24,328