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Section 1: 10-Q (10-Q)

mc-10q_20190630.htm
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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 June 30, 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)

 

(212883-3800

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title

Trading Symbol

Name of Exchange on which registered

Class A Common Stock

MC

New York Stock Exchange (NYSE)

 

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 July 17, 2019, there were 49,206,713 shares of Class A common stock, par value $0.01 per share, and 10,431,422 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

 

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4.

Controls and Procedures

 

36

Part II. Other Information

 

 

Item 1.

Legal Proceedings

 

37

Item 1A.

Risk Factors

 

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

Item 3.

Defaults Upon Senior Securities

 

37

Item 4.

Mine Safety Disclosures

 

37

Item 5.

Other Information

 

37

Item 6.

Exhibits

 

38

Signatures

 

 

39

 

 

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, 2019 and December 31, 2018

 

4

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018

 

5

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018

 

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

 

7

Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2019 and 2018

 

8

Notes to Condensed Consolidated Financial Statements

 

10

 

3


Table of Contents

 

Moelis & Company

Condensed Consolidated Statements of Financial Condition

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

108,360

 

 

$

 

261,100

 

Restricted cash

 

 

 

682

 

 

 

 

671

 

Receivables:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts of $3,900 and $1,975 as of June 30, 2019 and December 31, 2018, respectively

 

 

 

42,802

 

 

 

 

54,412

 

Accrued and other receivables

 

 

 

6,391

 

 

 

 

14,199

 

Total receivables

 

 

 

49,193

 

 

 

 

68,611

 

Deferred compensation

 

 

 

9,283

 

 

 

 

8,788

 

Investments at fair value (cost basis $635 and $80,717 as of June 30, 2019 and December 31, 2018, respectively)

 

 

 

149

 

 

 

 

80,650

 

Right-of-use assets

 

 

 

46,617

 

 

 

 

 

Equity method investment

 

 

 

61,858

 

 

 

 

63,274

 

Equipment and leasehold improvements, net

 

 

 

14,633

 

 

 

 

12,731

 

Deferred tax asset

 

 

 

406,732

 

 

 

 

402,859

 

Prepaid expenses and other assets

 

 

 

17,262

 

 

 

 

15,691

 

Total assets

 

$

 

714,769

 

 

$

 

914,375

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

Compensation payable

 

$

 

18,030

 

 

$

 

197,741

 

Accounts payable and accrued expenses

 

 

 

6,414

 

 

 

 

19,784

 

Amount due pursuant to tax receivable agreement

 

 

 

311,432

 

 

 

 

311,246

 

Deferred revenue

 

 

 

11,443

 

 

 

 

7,074

 

Lease liabilities

 

 

 

54,273

 

 

 

 

 

Other liabilities

 

 

 

319

 

 

 

 

6,777

 

Total liabilities

 

 

 

401,911

 

 

 

 

542,622

 

Commitments and Contingencies (See Note 12)

 

 

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 51,629,289 issued and 49,231,339 outstanding at June 30, 2019; 1,000,000,000 authorized, 47,031,095 issued and 45,604,980 outstanding at December 31, 2018)

 

 

 

516

 

 

 

 

470

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 10,431,422 issued and outstanding at June 30, 2019; 1,000,000,000 authorized, 10,493,358 issued and outstanding at December 31, 2018)

 

 

 

104

 

 

 

 

105

 

Treasury stock, at cost; 2,397,950 and 1,426,115 shares as of June 30, 2019 and December 31, 2018, respectively

 

 

 

(96,271

)

 

 

 

(56,661

)

Additional paid-in-capital

 

 

 

791,403

 

 

 

 

697,938

 

Retained earnings (accumulated deficit)

 

 

 

(327,353

)

 

 

 

(237,782

)

Accumulated other comprehensive income (loss)

 

 

 

667

 

 

 

 

291

 

Total Moelis & Company equity

 

 

 

369,066

 

 

 

 

404,361

 

Noncontrolling interests

 

 

 

(56,208

)

 

 

 

(32,608

)

Total equity

 

 

 

312,858

 

 

 

 

371,753

 

Total liabilities and equity

 

$

 

714,769

 

 

$

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

$

 

153,523

 

 

$

 

220,405

 

 

$

 

291,306

 

 

$

 

439,823

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

 

84,485

 

 

 

 

128,109

 

 

 

 

174,646

 

 

 

 

255,286

 

Occupancy

 

 

 

4,765

 

 

 

 

4,550

 

 

 

 

9,584

 

 

 

 

9,133

 

Professional fees

 

 

 

5,342

 

 

 

 

6,574

 

 

 

 

10,521

 

 

 

 

12,258

 

Communication, technology and information services

 

 

 

7,877

 

 

 

 

7,317

 

 

 

 

15,839

 

 

 

 

14,450

 

Travel and related expenses

 

 

 

9,293

 

 

 

 

10,851

 

 

 

 

20,790

 

 

 

 

22,411

 

Depreciation and amortization

 

 

 

1,290

 

 

 

 

1,100

 

 

 

 

2,445

 

 

 

 

2,155

 

Other expenses

 

 

 

6,592

 

 

 

 

6,259

 

 

 

 

13,973

 

 

 

 

13,416

 

Total expenses

 

 

 

119,644

 

 

 

 

164,760

 

 

 

 

247,798

 

 

 

 

329,109

 

Operating income (loss)

 

 

 

33,879

 

 

 

 

55,645

 

 

 

 

43,508

 

 

 

 

110,714

 

Other income and (expenses)

 

 

 

4,303

 

 

 

 

1,286

 

 

 

 

5,680

 

 

 

 

1,873

 

Income (loss) from equity method investments

 

 

 

719

 

 

 

 

2,226

 

 

 

 

1,432

 

 

 

 

3,114

 

Income (loss) before income taxes

 

 

 

38,901

 

 

 

 

59,157

 

 

 

 

50,620

 

 

 

 

115,701

 

Provision (benefit) for income taxes

 

 

 

1,234

 

 

 

 

6,027

 

 

 

 

(3,224

)

 

 

 

8,590

 

Net income (loss)

 

 

 

37,667

 

 

 

 

53,130

 

 

 

 

53,844

 

 

 

 

107,111

 

Net income (loss) attributable to noncontrolling interests

 

 

 

8,208

 

 

 

 

17,440

 

 

 

 

10,815

 

 

 

 

38,096

 

Net income (loss) attributable to Moelis & Company

 

$

 

29,459

 

 

$

 

35,690

 

 

$

 

43,029

 

 

$

 

69,015

 

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

50,107,269

 

 

 

 

41,750,396

 

 

 

 

48,919,127

 

 

 

 

38,938,952

 

Diluted

 

 

 

54,668,087

 

 

 

 

49,280,107

 

 

 

 

54,770,852

 

 

 

 

46,991,421

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.59

 

 

$

 

0.85

 

 

$

 

0.88

 

 

$

 

1.77

 

Diluted

 

$

 

0.54

 

 

$

 

0.72

 

 

$

 

0.79

 

 

$

 

1.47

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

 

37,667

 

 

$

 

53,130

 

 

$

 

53,844

 

 

$

 

107,111

 

Foreign currency translation adjustment, net of tax

 

 

 

(57

)

 

 

 

(1,843

)

 

 

 

483

 

 

 

 

(164

)

Other comprehensive income (loss)

 

 

 

(57

)

 

 

 

(1,843

)

 

 

 

483

 

 

 

 

(164

)

Comprehensive income (loss)

 

 

 

37,610

 

 

 

 

51,287

 

 

 

 

54,327

 

 

 

 

106,947

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

8,196

 

 

 

 

16,878

 

 

 

 

10,922

 

 

 

 

38,144

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

 

29,414

 

 

$

 

34,409

 

 

$

 

43,405

 

 

$

 

68,803

 

 

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,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 

53,844

 

 

$

 

107,111

 

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

 

 

 

 

 

 

 

 

 

 

Bad debt expense

 

 

 

2,203

 

 

 

 

1,208

 

Depreciation and amortization

 

 

 

2,445

 

 

 

 

2,155

 

(Income) loss from equity method investments

 

 

 

(1,432

)

 

 

 

(3,114

)

Equity-based compensation

 

 

 

67,132

 

 

 

 

58,335

 

Deferred tax provision

 

 

 

(3,011

)

 

 

 

8,568

 

Other

 

 

 

(3,373

)

 

 

 

3,688

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

9,365

 

 

 

 

(8,475

)

Accrued and other receivables

 

 

 

7,815

 

 

 

 

(54,549

)

Prepaid expenses and other assets

 

 

 

(1,077

)

 

 

 

933

 

Deferred compensation

 

 

 

(509

)

 

 

 

(1,160

)

Compensation payable

 

 

 

(180,065

)

 

 

 

(32,227

)

Accounts payable and accrued expenses

 

 

 

(13,359

)

 

 

 

(12,012

)

Deferred revenue

 

 

 

4,369

 

 

 

 

(998

)

Dividends received

 

 

 

2,848

 

 

 

 

2,737

 

Other liabilities

 

 

 

2,374

 

 

 

 

(2,205

)

Net cash provided by (used in) operating activities

 

 

 

(50,431

)

 

 

 

69,995

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

(9,245

)

 

 

 

(55,479

)

Proceeds from sales of investments

 

 

 

89,859

 

 

 

 

92,310

 

Note payments received from employees

 

 

 

 

 

 

 

193

 

Purchase of equipment and leasehold improvements

 

 

 

(4,587

)

 

 

 

(3,133

)

Net cash provided by (used in) investing activities

 

 

 

76,027

 

 

 

 

33,891

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Dividends and distributions

 

 

 

(145,537

)

 

 

 

(167,145

)

Proceeds from exercise of stock options

 

 

 

5,864

 

 

 

 

6,695

 

Treasury Stock Purchases

 

 

 

(39,610

)

 

 

 

(24,172

)

Class A partnership units and other equity purchased

 

 

 

 

 

 

 

(135

)

Net cash provided by (used in) financing activities

 

 

 

(179,283

)

 

 

 

(184,757

)

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

 

 

 

958

 

 

 

 

401

 

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

 

 

 

(152,729

)

 

 

 

(80,470

)

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

 

 

 

261,771

 

 

 

 

213,894

 

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

 

$

 

109,042

 

 

$

 

133,424

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

13,448

 

 

$

 

14,185

 

Other non-cash activity

 

 

 

 

 

 

 

 

 

 

Dividend equivalents issued

 

$

 

23,998

 

 

$

 

24,767

 

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

 

$

 

670

 

 

$

 

22,174

 

Cumulative Effect Adjustment upon Adoption of ASU 2014-09

 

$

 

 

 

$

 

3,155

 

Exercised stock option proceeds receivable

 

$

 

 

 

$

 

24

 

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

 

$

 

2,271

 

 

$

 

677

 

 

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