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Section 1: 10-Q (10-Q)

mc-10q_20200331.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 March 31, 2020

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 April 16, 2020, there were 53,419,336 shares of Class A common stock, par value $0.01 per share, and 10,397,915 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

 

34

Item 4.

Controls and Procedures

 

34

Part II. Other Information

 

 

Item 1.

Legal Proceedings

 

35

Item 1A.

Risk Factors

 

35

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 March 31, 2020 and December 31, 2019

 

4

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

 

5

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019

 

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

7

Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2020 and 2019

 

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,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

124,158

 

 

$

 

167,812

 

Restricted cash

 

 

 

597

 

 

 

 

760

 

Receivables:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance for credit losses of $3,776 and $4,088 as of March 31, 2020 and December 31, 2019, respectively

 

 

 

38,351

 

 

 

 

45,074

 

Accrued and other receivables

 

 

 

13,680

 

 

 

 

10,722

 

Total receivables

 

 

 

52,031

 

 

 

 

55,796

 

Deferred compensation

 

 

 

16,592

 

 

 

 

11,748

 

Investments

 

 

 

58,881

 

 

 

 

213,231

 

Right-of-use assets

 

 

 

186,524

 

 

 

 

190,763

 

Equipment and leasehold improvements, net

 

 

 

25,934

 

 

 

 

13,992

 

Deferred tax asset

 

 

 

408,095

 

 

 

 

400,496

 

Prepaid expenses and other assets

 

 

 

16,874

 

 

 

 

17,101

 

Total assets

 

$

 

889,686

 

 

$

 

1,071,699

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

Compensation payable

 

$

 

12,424

 

 

$

 

163,131

 

Accounts payable, accrued expenses and other liabilities

 

 

 

24,778

 

 

 

 

16,107

 

Amount due pursuant to tax receivable agreement

 

 

 

300,871

 

 

 

 

297,986

 

Deferred revenue

 

 

 

4,450

 

 

 

 

3,023

 

Lease liabilities

 

 

 

194,607

 

 

 

 

197,625

 

Total liabilities

 

 

 

537,130

 

 

 

 

677,872

 

Commitments and Contingencies (See Note 11)

 

 

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 57,076,395 issued and 53,449,058 outstanding at March 31, 2020; 1,000,000,000 authorized, 52,773,617 issued and 50,016,059 outstanding at December 31, 2019)

 

 

 

571

 

 

 

 

528

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 10,397,915 issued and outstanding at March 31, 2020; 1,000,000,000 authorized, 10,397,915 issued and outstanding at December 31, 2019)

 

 

 

104

 

 

 

 

104

 

Treasury stock, at cost; 3,627,337 and 2,757,558 shares as of March 31, 2020 and December 31, 2019, respectively

 

 

 

(139,472

)

 

 

 

(107,836

)

Additional paid-in-capital

 

 

 

933,094

 

 

 

 

872,791

 

Retained earnings (accumulated deficit)

 

 

 

(378,817

)

 

 

 

(324,192

)

Accumulated other comprehensive income (loss)

 

 

 

128

 

 

 

 

1,432

 

Total Moelis & Company equity

 

 

 

415,608

 

 

 

 

442,827

 

Noncontrolling interests

 

 

 

(63,052

)

 

 

 

(49,000

)

Total equity

 

 

 

352,556

 

 

 

 

393,827

 

Total liabilities and equity

 

$

 

889,686

 

 

$

 

1,071,699

 

 

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,

 

 

 

2020

 

 

2019

 

Revenues

 

$

 

153,706

 

 

$

 

137,783

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

 

95,120

 

 

 

 

90,161

 

Occupancy

 

 

 

7,231

 

 

 

 

4,819

 

Professional fees

 

 

 

4,236

 

 

 

 

5,179

 

Communication, technology and information services

 

 

 

8,392

 

 

 

 

7,962

 

Travel and related expenses

 

 

 

7,944

 

 

 

 

11,497

 

Depreciation and amortization

 

 

 

1,199

 

 

 

 

1,155

 

Other expenses

 

 

 

5,142

 

 

 

 

7,381

 

Total expenses

 

 

 

129,264

 

 

 

 

128,154

 

Operating income (loss)

 

 

 

24,442

 

 

 

 

9,629

 

Other income and (expenses)

 

 

 

(1,660

)

 

 

 

2,090

 

Income (loss) before income taxes

 

 

 

22,782

 

 

 

 

11,719

 

Provision (benefit) for income taxes

 

 

 

(7,344

)

 

 

 

(4,458

)

Net income (loss)

 

 

 

30,126

 

 

 

 

16,177

 

Net income (loss) attributable to noncontrolling interests

 

 

 

4,996

 

 

 

 

2,607

 

Net income (loss) attributable to Moelis & Company

 

$

 

25,130

 

 

$

 

13,570

 

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

52,666,457

 

 

 

 

48,309,358

 

Diluted

 

 

 

57,092,982

 

 

 

 

55,108,335

 

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

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.48

 

 

$

 

0.28

 

Diluted

 

$

 

0.44

 

 

$

 

0.25

 

 

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,

 

 

 

2020

 

 

2019

 

Net income

 

$

 

30,126

 

 

$

 

16,177

 

Foreign currency translation adjustment, net of tax

 

 

 

(1,630

)

 

 

 

540

 

Other comprehensive income (loss)

 

 

 

(1,630

)

 

 

 

540

 

Comprehensive income (loss)

 

 

 

28,496

 

 

 

 

16,717

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

4,670

 

 

 

 

2,726

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

 

23,826

 

 

$

 

13,991

 

 

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,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 

30,126

 

 

$

 

16,177

 

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

 

 

 

 

 

 

 

 

 

 

Bad debt expense

 

 

 

518

 

 

 

 

1,288

 

Depreciation and amortization

 

 

 

1,199

 

 

 

 

1,155

 

Equity-based compensation

 

 

 

38,255

 

 

 

 

38,886

 

Deferred tax provision

 

 

 

(6,723

)

 

 

 

10,638

 

Other

 

 

 

2,099

 

 

 

 

(416

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

5,565

 

 

 

 

8,720

 

Accrued and other receivables

 

 

 

(1,899

)

 

 

 

3,626

 

Prepaid expenses and other assets

 

 

 

117

 

 

 

 

(183

)

Deferred compensation

 

 

 

(4,925

)

 

 

 

(2,616

)

Compensation payable

 

 

 

(150,260

)

 

 

 

(186,519

)

Accounts payable, accrued expenses and other liabilities

 

 

 

9,454

 

 

 

 

(19,021

)

Deferred revenue

 

 

 

1,439

 

 

 

 

3,071

 

Dividends received

 

 

 

1,942

 

 

 

 

2,848

 

Net cash provided by (used in) operating activities

 

 

 

(73,093

)

 

 

 

(122,346

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

(28,152

)

 

 

 

(9,245

)

Proceeds from sales of investments

 

 

 

181,249

 

 

 

 

80,559

 

Purchase of equipment and leasehold improvements

 

 

 

(13,139

)

 

 

 

(2,172

)

Net cash provided by (used in) investing activities

 

 

 

139,958

 

 

 

 

69,142

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Dividends and distributions

 

 

 

(88,689

)

 

 

 

(113,734

)

Proceeds from exercise of stock options

 

 

 

11,819

 

 

 

 

492

 

Treasury stock purchases

 

 

 

(31,636

)

 

 

 

(26,970

)

Net cash provided by (used in) financing activities

 

 

 

(108,506

)

 

 

 

(140,212

)

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

 

 

 

(2,176

)

 

 

 

1,126

 

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

 

 

 

(43,817

)

 

 

 

(192,290

)

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

 

 

 

168,572

 

 

 

 

261,771

 

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

 

$

 

124,755

 

 

$

 

69,481

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

1,560

 

 

$

 

11,895

 

Other non-cash activity

 

 

 

 

 

 

 

 

 

 

Cumulative effect adjustment upon adoption of ASU 2016-13

 

$

 

364

 

 

$

 

 

Dividend equivalents issued

 

$

 

12,125

 

 

$

 

19,484

 

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

 

$

 

786

 

 

$

 

240

 

Dividend declared not paid

 

$

 

 

 

$

 

657

 

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

 

$

 

96

 

 

$

 

 

 

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, 2020

 

 

52,773,617

 

 

 

10,397,915

 

 

 

(2,757,558

)

 

$

 

528

 

 

$

 

104

 

 

$

 

(107,836

)

 

$

 

872,791

 

 

$

 

(324,192

)

 

$

 

1,432

 

 

$

 

(49,000

)

 

$

 

393,827

 

Cumulative effect adjustment upon adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(364

)

 

 

 

 

 

 

 

 

 

 

 

(364

)

Balance as of January 1, 2020, as adjusted

 

 

52,773,617

 

 

 

10,397,915

 

 

 

(2,757,558

)

 

 

 

528

 

 

 

 

104

 

 

 

 

(107,836

)

 

 

 

872,791

 

 

 

 

(324,556

)

 

 

 

1,432

 

 

 

 

(49,000

)

 

 

 

393,463

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,130

 

 

 

 

 

 

 

 

4,996

 

 

 

 

30,126

 

Equity-based compensation

 

 

3,581,294

 

 

 

 

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

38,189

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

38,255

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,304

)

 

 

 

(326

)

 

 

 

(1,630

)

Dividends declared ($1.26 per share of Class A Common Stock) and distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,125

 

 

 

 

(79,391

)

 

 

 

 

 

 

 

(21,423

)

 

 

 

(88,689

)

Treasury Stock Purchases

 

 

 

 

 

 

 

 

(869,779

)

 

 

 

 

 

 

 

 

 

 

 

(31,636

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,636

)

Exercise of Stock options

 

 

721,484

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

11,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,819

 

Equity-based payments to non-employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

158

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,981

)

 

 

 

 

 

 

 

 

 

 

 

2,671

 

 

 

 

690

 

Balance as of March 31, 2020

 

 

57,076,395

 

 

 

10,397,915

 

 

 

(3,627,337

)

 

$

 

571

 

 

$

 

104

 

 

$

 

(139,472

)

 

$

 

933,094

 

 

$

 

(378,817

)

 

$

 

128

 

 

$

 

(63,052

)

 

$

 

352,556

 

 

 

 

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

 

 

 

 

Class A

 

 

Class B

 

 

 

 

 

 

 

Additional