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

		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

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

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

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

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

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

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		—		—			—			—		—			—			4,669		—			—			—