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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
(Mark One) |
|
|
ý |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015 |
or |
o |
|
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
(State or other jurisdiction of
incorporation or organization) |
|
46-4500216
(I.R.S. Employer
Identification No.) |
399 Park Avenue, 5th Floor, New York NY
(Address of principal executive offices) |
|
10022
(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. ý Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See
definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer o |
|
Accelerated filer o |
|
Non-accelerated filer ý (Do not check if a
smaller reporting company) |
|
Smaller reporting company o |
Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange
Act). o Yes ý No
As of April 30, 2015, there were 19,629,308 shares of Class A common stock, par value $0.01 per share, and 31,617,704 shares of Class B common
stock, par value $0.01 per share, outstanding.
Table of Contents
TABLE OF CONTENTS
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated and Combined Financial Statements (Unaudited)
3
Table of Contents
Moelis & Company
Condensed Consolidated and Combined Statements of Financial Condition
(Unaudited)
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
Assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
97,859 |
|
$ |
197,944 |
|
Restricted cash |
|
|
846 |
|
|
833 |
|
Receivables: |
|
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $1,548 and $1,552 as of March 31, 2015 and December 31, 2014,
respectively |
|
|
18,312 |
|
|
22,987 |
|
Other receivables |
|
|
5,606 |
|
|
4,907 |
|
|
|
|
|
|
|
|
|
Total receivables |
|
|
23,918 |
|
|
27,894 |
|
Deferred compensation |
|
|
7,869 |
|
|
5,652 |
|
Investments at fair value (cost basis $9,999 and $39,999 as of March 31, 2015 and December 31, 2014, respectively) |
|
|
9,998 |
|
|
39,997 |
|
Equity method investments |
|
|
20,151 |
|
|
17,416 |
|
Equipment and leasehold improvements, net |
|
|
7,290 |
|
|
7,338 |
|
Deferred tax asset |
|
|
159,206 |
|
|
160,137 |
|
Prepaid expenses and other assets |
|
|
7,797 |
|
|
7,038 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
334,934 |
|
$ |
464,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
Compensation payable |
|
$ |
21,526 |
|
$ |
135,920 |
|
Accounts payable and accrued expenses |
|
|
15,807 |
|
|
19,888 |
|
Amount due pursuant to tax receivable agreement |
|
|
119,738 |
|
|
119,738 |
|
Deferred revenue |
|
|
6,623 |
|
|
5,152 |
|
Other liabilities |
|
|
8,965 |
|
|
9,166 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
172,659 |
|
|
289,864 |
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See Note 13) |
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(222 |
) |
|
85 |
|
Class A common stock, par value $0.01 per share (1,000,000,000 shares
authorized, 19,793,132 issued and 19,657,226 outstanding at March 31, 2015; 1,000,000,000 authorized, 19,770,893 issued and outstanding at December 31, 2014) |
|
|
198 |
|
|
198 |
|
Class B common stock, par value $0.01 per share (1,000,000,000 shares
authorized, 31,617,704 issued and outstanding at March 31, 2015; 1,000,000,000 authorized, 31,621,542 issued and outstanding at December 31, 2014) |
|
|
316 |
|
|
316 |
|
Treasury stock, at cost; 135,906 and 0 shares as of March 31, 2015 and December 31, 2014, respectively |
|
|
(4,327 |
) |
|
|
|
Additional paid-in-capital |
|
|
144,837 |
|
|
136,896 |
|
Retained earnings (accumulated deficit) |
|
|
(23,229 |
) |
|
(24,118 |
) |
|
|
|
|
|
|
|
|
Total Moelis & Company equity |
|
|
117,573 |
|
|
113,377 |
|
Noncontrolling interests |
|
|
44,702 |
|
|
61,008 |
|
|
|
|
|
|
|
|
|
Total equity |
|
|
162,275 |
|
|
174,385 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
334,934 |
|
$ |
464,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the condensed consolidated and combined financial statements (unaudited).
4
Table of Contents
Moelis & Company
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2015 |
|
2014 |
|
Revenues |
|
$ |
99,412 |
|
$ |
114,517 |
|
Expenses |
|
|
|
|
|
|
|
Compensation and benefits |
|
|
55,393 |
|
|
70,441 |
|
Occupancy |
|
|
3,677 |
|
|
3,304 |
|
Professional fees |
|
|
3,554 |
|
|
3,335 |
|
Communication, technology and information services |
|
|
4,101 |
|
|
3,774 |
|
Travel and related expenses |
|
|
5,613 |
|
|
5,085 |
|
Depreciation and amortization |
|
|
620 |
|
|
575 |
|
Other expenses |
|
|
5,073 |
|
|
4,068 |
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
78,031 |
|
|
90,582 |
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
21,381 |
|
|
23,935 |
|
Other income and expenses |
|
|
15 |
|
|
19 |
|
Income (loss) from equity method investments |
|
|
2,865 |
|
|
(1,220 |
) |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
24,261 |
|
|
22,734 |
|
Provision for income taxes |
|
|
4,300 |
|
|
642 |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
19,961 |
|
$ |
22,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests |
|
|
14,625 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Moelis & Company |
|
$ |
5,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of Class A common stock outstanding |
|
|
|
|
|
|
|
Basic |
|
|
19,730,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
20,948,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to holders of shares of Class A common stock |
|
|
|
|
|
|
|
Basic |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the condensed consolidated and combined financial statements (unaudited).
5
Table of Contents
Moelis & Company
Condensed Consolidated and Combined Statements of Comprehensive Income
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2015 |
|
2014 |
|
Net income (loss) |
|
$ |
19,961 |
|
$ |
22,092 |
|
Foreign currency translation adjustment, net of tax |
|
|
(843 |
) |
|
1 |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(843 |
) |
|
1 |
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
19,118 |
|
$ |
22,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interests |
|
|
14,089 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Moelis & Company |
|
$ |
5,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the condensed consolidated and combined financial statements (unaudited).
6
Table of Contents
Moelis & Company
Condensed Consolidated and Combined Statements of Cash Flows
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2015 |
|
2014 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
19,961 |
|
$ |
22,092 |
|
Adjustments to reconcile combined net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Bad debt expense |
|
|
177 |
|
|
1,022 |
|
Depreciation and amortization |
|
|
620 |
|
|
575 |
|
(Income) loss from equity method investments |
|
|
(2,865 |
) |
|
1,220 |
|
Equity-based compensation |
|
|
8,549 |
|
|
11,010 |
|
Deferred tax provision |
|
|
931 |
|
|
|
|
Other |
|
|
(1 |
) |
|
(540 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
4,230 |
|
|
(1,432 |
) |
Other receivables |
|
|
(765 |
) |
|
241 |
|
Prepaid expenses and other assets |
|
|
(880 |
) |
|
(6,009 |
) |
Deferred compensation |
|
|
(2,245 |
) |
|
(5,823 |
) |
Compensation payable |
|
|
(113,737 |
) |
|
(69,507 |
) |
Accounts payable and accrued expenses |
|
|
(3,918 |
) |
|
364 |
|
Deferred revenue |
|
|
1,473 |
|
|
1,277 |
|
Dividends received |
|
|
130 |
|
|
|
|
Other liabilities |
|
|
(219 |
) |
|
271 |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(88,559 |
) |
|
(45,239 |
) |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Purchase of investments |
|
|
(9,999 |
) |
|
(16,999 |
) |
Proceeds from sales of investments |
|
|
39,999 |
|
|
83,237 |
|
Investment in equity method investments |
|
|
|
|
|
(4,180 |
) |
Note payments received from employees |
|
|
|
|
|
686 |
|
Purchase of equipment and leasehold improvements |
|
|
(569 |
) |
|
(717 |
) |
Change in restricted cash |
|
|
(46 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
29,385 |
|
|
62,026 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Dividends and distributions |
|
|
(35,453 |
) |
|
(39,188 |
) |
Other cash contributions from (distributions to) Parent |
|
|
|
|
|
(17,240 |
) |
Purchase of treasury stock |
|
|
(4,327 |
) |
|
|
|
Net tax benefit (cost) from the delivery of restricted stock units and payment of dividend equivalents |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(39,777 |
) |
|
(56,428 |
) |
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
(1,134 |
) |
|
(17 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
(100,085 |
) |
|
(39,658 |
) |
Cash and cash equivalents, beginning of period |
|
|
197,944 |
|
|
303,024 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
97,859 |
|
$ |
263,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure: |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Income taxes |
|
$ |
7,167 |
|
$ |
1,712 |
|
Other non-cash activity |
|
|
|
|
|
|
|
Non-cash distribution to Parent |
|
$ |
|
|
$ |
2,904 |
|
Dividend equivalents issued |
|
$ |
455 |
|
$ |
|
|
See notes to the condensed consolidated and combined financial statements (unaudited).
7
Table of Contents
Moelis & Company
Condensed Consolidated and Combined Statements of Changes in Equity
(Unaudited)
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
(Accumulated
Deficit) |
|
|
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
|
|
|
|
|
|
Class A
Common
Stock |
|
Class B
Common
Stock |
|
Treasury
Stock |
|
Class A
Common
Stock |
|
Class B
Common
Stock |
|
Treasury
Stock |
|
Additional
Paid-In
Capital |
|
Parent
Company
Investment |
|
Noncontrolling
Interests |
|
Total
Equity |
|
Balance as of January 1, 2014 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
308,444 |
|
$ |
926 |
|
$ |
|
|
$ |
309,370 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,092 |
|
|
|
|
|
|
|
|
22,092 |
|
Net cash distributions to Parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,428 |
) |
|
|
|
|
|
|
|
(56,428 |
) |
Equity-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,010 |
|
|
|
|
|
|
|
|
11,010 |
|
Equity-based contributions to joint venture and Parent's advisory board |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
682 |
|
|
|
|
|
|
|
|
682 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
1 |
|
Other non-cash distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,904 |
) |
|
|
|
|
|
|
|
(2,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2014 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
282,896 |
|
$ |
927 |
|
$ |
|
|
$ |
283,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2015 |
|
|
19,770,893 |
|
|
31,621,542 |
|
|
|
|
$ |
198 |
|
$ |
316 |
|
$ |
|
|
$ |
136,896 |
|
$ |
(24,118 |
) |
$ |
|
|
$ |
85 |
|
$ |
61,008 |
|
|
174,385 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,336 |
|
|
|
|
|
|
|
|
14,625 |
|
|
19,961 |
|
Equity-based compensation |
|
|
22,239 |
|
|
(3,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,483 |
|
|
|
|
|
|
|
|
|
|
|
1,066 |
|
|
8,549 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(307 |
) |
|
(536 |
) |
|
(843 |
) |
Dividends and distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455 |
|
|
(4,447 |
) |
|
|
|
|
|
|
|
(31,461 |
) |
|
(35,453 |
) |
Treasury Stock Purchases |
|
|
|
|
|
|
|
|
(135,906 |
) |
|
|
|
|
|
|
|
(4,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,327 |
) |
Net tax benefit from the delivery of RSUs and payment of dividend equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2015 |
|
|
19,793,132 |
|
|
31,617,704 |
|
|
(135,906 |
) |
$ |
198 |
|
$ |
316 |
|
$ |
(4,327 |
) |
$ |
144,837 |
|
$ |
(23,229 |
) |
$ |
|
|
$ |
(222 |
) |
$ |
44,702 |
|
$ |
162,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated and combined financial statements (unaudited).
8
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying condensed consolidated and combined financial statements include the accounts and operations of Moelis & Company since its initial public offering ("IPO") in
April of 2014, along with the historical carved out accounts and operations of the advisory business of Moelis & Company Holdings LP (the "Parent" or "Old Holdings") prior to
Moelis & Company's IPO (Moelis & Company and the advisory business of the Parent are referred to as the "Company," "we," "our," or "us").
Prior
to the Company's IPO, the Parent operated as a Delaware limited partnership that commenced operations on May 1, 2007. The general partner of the Parent was Moelis &
Company Holdings GP LLC. The sole member of Moelis & Company Holdings GP LLC was Moelis & Company Manager LLC ("Manager"), which was wholly-owned by
certain co-founding partners. In April of 2014, Old Holdings reorganized its business in connection with the IPO of 7,475,000 shares of Moelis & Company Class A common stock. Following
the reorganization, the advisory business is now held under Moelis & Company Group LP ("Group LP"), a U.S. Delaware limited partnership, and Group LP is controlled by
Moelis & Company. The net assets associated with the advisory operations were distributed to Group LP at their carrying amounts. The details of the reorganization and IPO are described
further in Note 4.
The
Company's activities as an investment banking advisory firm constitute a single business segment offering clients, including corporations, governments and financial sponsors, a range
of advisory services with expertise across all major industries in mergers and acquisitions, recapitalizations and restructurings and other corporate finance matters.
Basis of PresentationThe condensed consolidated and combined financial statements of Moelis & Company include its partnership interests
in
Group LP, its equity interest in the sole general partner of Group LP, Moelis & Company Group GP LLC ("Group GP"), and its interests in its subsidiaries.
Moelis & Company will operate and control all of the business and affairs of Group LP and
its operating entity subsidiaries indirectly through its equity interest in Group GP. The Company operates through the following subsidiaries:
-
- Moelis & Company LLC ("Moelis U.S."), a Delaware limited liability company, a registered broker-dealer with the U.S.
Securities and Exchange Commission ("SEC") and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA").
-
- Moelis & Company International Holdings LLC ("Moelis International"), a Delaware limited liability company, owns the
following entities:
-
- Moelis & Company UK LLP ("Moelis UK"), a limited liability partnership registered under the laws of England
and Wales. In addition to the United Kingdom, Moelis UK maintains operations through the following subsidiaries and branches:
-
- Moelis & Company France SAS (French subsidiary)
-
- Moelis & Company Europe Limited, Frankfurt am Main (German branch)
-
- Moelis & Company UK LLP, DIFC Branch (Dubai branch)
9
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION (Continued)
-
- 50% of Moelis Australia Holdings PTY Limited ("Moelis Australia Holdings", or the "Australian JV"), a joint venture with
Magic Trust Trustee PTY Limited (the "Trust").
-
- Moelis & Company Asia Limited ("Moelis Asia"), a limited company incorporated in Hong Kong licensed under the Hong
Kong Securities and Futures Ordinance to provide financial advisory services. In addition to Hong Kong, Moelis Asia maintains operations in Beijing China through Moelis & Company Consulting
(Beijing) Company Limited.
-
- Moelis & Company India Private Limited, a private limited company incorporated in Mumbai, India.
-
- Moelis & Company Assessoria Financeira Ltda. ("Moelis Brazil"), a limited liability company incorporated in
São Paulo, Brazil.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of AccountingThe Company prepared the accompanying condensed consolidated
and combined financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). As permitted by the interim reporting rules and
regulations set forth by the SEC, the condensed consolidated and combined financial statements presented exclude certain financial information and footnote disclosures normally included in audited
financial statements prepared in accordance with U.S. GAAP. In the opinion of the Company's management, the accompanying unaudited condensed consolidated and combined financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to fairly present the accompanying unaudited condensed consolidated and combined financial statements. These unaudited
condensed consolidated and combined financial statements should be read in conjunction with the consolidated and combined audited financial statements and notes thereto included in our Annual Report
on Form 10-K for the year ended December 31, 2014.
ConsolidationThe Company's policy is to consolidate (i) entities in which it has a controlling financial interest, (ii) variable
interest entities where the Company has a variable interest and is deemed to be the primary beneficiary and (iii) limited partnerships where the Company is the general partner, unless the
presumption of control is overcome. When the Company does not have a controlling interest in an entity, but exerts significant influence over the entity's operating and financial decisions, the
Company applies the equity method of accounting in which it records in earnings its share of income or losses of the entity. All intercompany balances and transactions with the Company's subsidiaries
have been eliminated in consolidation.
Use of EstimatesThe preparation of condensed consolidated and combined financial statements and related disclosures in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the period in which they are determined to be necessary.
10
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In
preparing the condensed consolidated and combined financial statements, management makes estimates and assumptions regarding:
-
- the adequacy of the allowance for doubtful accounts;
-
- the realization of deferred taxes;
-
- the measurement of equity-based compensation; and
-
- other matters that affect the reported amounts and disclosures of contingencies in the financial statements.
Cash and Cash EquivalentsCash and cash equivalents include all short-term highly liquid investments that are readily convertible to known amounts
of
cash and have original maturities of three months or less from the date of purchase.
As
of March 31, 2015, the Company had cash equivalents of $54,009 (December 31, 2014: $128,739) invested primarily in government securities money market funds.
Additionally, as of March 31, 2015, the Company had cash of $43,850 (December 31, 2014: $69,205) maintained in U.S. and non-U.S. bank accounts, of which most U.S. bank account balances
exceeded the FDIC coverage limit of $250.
Restricted CashThe Company held cash of $846 and $833 as of March 31, 2015 and December 31, 2014, respectively, in restricted
collateral deposits primarily held by certain non-U.S. subsidiaries.
ReceivablesThe accompanying condensed consolidated and combined statements of
financial condition present accounts receivable balances net of allowance for doubtful accounts based on the Company's assessment of the collectability of customer accounts.
The
Company maintains an allowance for doubtful accounts that, in management's opinion, provides for an adequate reserve to cover losses that may be incurred. The Company regularly
reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable, and the current economic conditions that may affect a customer's ability to
pay such amounts owed to the Company.
After
concluding that a reserved accounts receivable is no longer collectible, the Company will charge-off the receivable. This is determined based on several factors including the age
of the accounts receivable and the credit worthiness of the customer. This has the effect of reducing both the gross receivable and the allowance for doubtful accounts.
Deferred CompensationDeferred compensation costs represent arrangements with certain employees whereby cash payments are subject to a required
period
of service subsequent to payment by the Company. These amounts are charged to expenses over the period that the employee is required to provide services in order to vest in the payment.
Financial Instruments at Fair ValueFair value is generally based on quoted prices, however if quoted market prices are not available, fair value
is
determined based on other relevant factors,
11
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
including
dealer price quotations, price activity for equivalent instruments and valuation pricing models. The Company established a fair value hierarchy which prioritizes and ranks the level of
market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument, the characteristics
specific to the instrument and the state of the marketplace (including the existence and transparency of transactions between market participants). Financial instruments with readily-available
actively quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of
judgment used in measuring fair value.
Financial
instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to
access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a
large position and a sale could reasonably affect the quoted price.
Level 2Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the
same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.
Level 3Pricing inputs are unobservable for the instruments and include situations where there is little, if any, market activity for
the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company's management.
In
certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair
value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the instrument.
For
level 3 investments in which pricing inputs are unobservable and limited market activity exists, management's determination of fair value is based on the best information
available, may incorporate management's own assumptions and involves a significant degree of judgment.
Equity Method InvestmentsThe Company accounts for its equity method investments under the equity method of accounting as the Company does not
control
these entities but has the ability to exercise significant influence. The amounts recorded on the condensed consolidated and combined financial statements of financial condition reflects the Company's
share of contributions made to, distributions received from, and the equity earnings and losses of, the investments. The Company reflects its share of gains and losses of the investment in income
(loss) from equity method investments in the condensed consolidated and combined statements of operations.
Equipment and Leasehold ImprovementsOffice equipment and furniture and fixtures are
stated at cost less accumulated depreciation, which is determined using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years, respectively.
Leasehold
12
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
improvements
are stated at cost less accumulated amortization, which is determined using the straight-line method over the lesser of the term of the lease or the estimated useful life of the asset.
Major
renewals and improvements are capitalized and minor replacements, maintenance and repairs are charged to expenses as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation or amortization are removed from the condensed consolidated and combined statements of financial condition and any gain or loss is reflected in the condensed
consolidated and combined statements of operations.
Deferred Tax Asset and Amount Due Pursuant to Tax Receivable AgreementIn conjunction with the IPO, the Company is treated for U.S. federal income
tax
purposes as having directly purchased Class A partnership units in Group LP from the existing unitholders. In the future, additional Group LP Class A partnership units may
be exchanged for shares of Class A common stock in the Company. The initial purchase and these future exchanges are expected to result in an increase in the tax basis of Group LP's
assets attributable to the Company's interest in Group LP. These increases in the tax basis of Group LP's assets attributable to the Company's interest in Group LP would not have
been available but for this initial purchase and future exchanges. Such increases in tax basis are likely to increase (for tax purposes) depreciation and amortization deductions and therefore reduce
the amount of income tax the Company would otherwise be required to pay in the future. As a result, the Company records a deferred tax asset for such increase in tax basis.
The
Company has entered into a tax receivable agreement with its eligible Managing Directors that will provide for the payment by the Company to its eligible Managing Directors of 85% of
the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes as a result of (a) the increases in tax basis attributable to
exchanges by its eligible Managing Directors and (b) tax benefits related to imputed interest deemed to be paid by the Company as a result of this tax receivable agreement. The Company expects
to benefit from the remaining 15% of cash savings, if any, in income tax that it realizes and record any such estimated tax benefits as an increase to additional paid-in-capital. For purposes of the
tax receivable agreement, cash savings in income tax will be computed by comparing the Company's actual income tax liability to the amount of such taxes that it would have been required to pay had
there been no increase to the tax basis of the tangible and intangible assets of Group LP as a result of the exchanges and had it not entered into the tax receivable agreement. The term of the
tax receivable agreement commenced upon consummation of the IPO and will continue until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the tax
receivable agreement for an amount based on an agreed value of
payments remaining to be made under the agreement. The Company has recorded the estimated tax benefits related to the increase in tax basis and imputed interest as a result of the initial purchase
described above as a deferred tax asset in the condensed consolidated and combined statements of financial condition. The amount due to its eligible Managing Directors related to the tax receivable
agreement as a result of the initial purchase described above is recorded as amount due pursuant to tax receivable agreement in the condensed consolidated and combined statements of financial
condition. The amounts recorded for the deferred tax asset and the liability for our obligations under the tax receivable agreement are estimates. Any adjustments to our estimates subsequent to their
initial establishment will be included in net income (loss). Future exchanges of
13
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Class A
partnership units in Group LP for Class A common shares in the Company will be accounted for in a similar manner.
Revenue and Expense RecognitionThe Company recognizes revenues from providing advisory services when earned and collection is reasonably assured.
Upfront fees are recognized over the estimated period that the related services are performed. Transaction-related fees are recognized when all services for a transaction have been provided, specified
conditions have been met and the transaction closes. Underwriting revenues are recognized when the offering is deemed complete and is presented net of related expenses. Deferred revenues are recorded
for fees received that have not yet been earned. Expenses are reflected on the condensed consolidated and combined statements of operations, net of client reimbursements. Reimbursable expenses billed
to clients totaled $2,873 and $2,510 for the three months ended March 31, 2015 and 2014, respectively.
Equity-based CompensationThe Company recognizes the cost of employee services received in exchange for an equity instrument award. The cost is
based
on its grant-date fair value amortized over the service period required by the award's vesting terms. Prior to the Company's IPO, the measurement of the grant-date fair value required the Company's
Parent to make estimates about its future operating results and the appropriate risk-adjusted discount rates. The methods used to estimate the fair value of equity-based compensation generally
included the market approach and the income approach, each of which involve a significant degree of judgment. Under the market approach, fair value is determined with reference to observable valuation
measures for comparable companies (e.g., multiplying a key performance metric of the comparable company by a relevant valuation multipleadjusted for differences between the
Company's Parent and the referenced comparable). Under the income approach, fair value is determined by converting future amounts (e.g., cash flows or earnings) to a single present amount
(discounted) using current expectations about those future amounts. Subsequent to the Company's IPO, the grant-date fair value of equity awards is based on quoted market prices at the time of grant.
The Company recognizes such amounts in compensation and benefits expenses in the accompanying condensed consolidated and combined
statements of operations and as an increase to equity in the accompanying condensed consolidated and combined statements of financial condition and changes in equity. The Company records as treasury
stock shares repurchased from its employees for the purpose of settling tax liabilities incurred upon the vesting of restricted stock units. The Company records dividend equivalent payments, net of
forfeitures, on outstanding restricted stock units as a dividend payment and a charge to equity. See Note 9 for further discussion.
For
the purposes of calculating diluted net income (loss) per share to holders of Class A common stock, unvested service-based awards are included in the diluted weighted average
shares of Class A common stock outstanding using the treasury stock method. See Note 8 for further discussion.
The
Company generally permits a retiring employee to retain and not forfeit certain qualifying incentive RSUs granted during employment if at retirement the employee (i) is at
least 54 years old and (ii) has provided at least 8 consecutive years of service to the Company. Any such RSUs will continue to vest on their applicable vesting schedule, subject to
noncompetition and other terms. Over time a greater number of employees may become retirement eligible and the related requisite service period over which we will expense these awards will be shorter
than the stated vesting period.
14
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income TaxesPrior to the Company's reorganization and IPO of Moelis & Company, the Company had been primarily subject to the New York
City
unincorporated business tax ("UBT") and certain other foreign, state and local taxes as applicable. The Company's operations were historically comprised of entities that are organized as limited
liability companies and limited partnerships. For U.S. federal income tax purposes, taxes related to income earned by these entities represent obligations of the individual partners and members and
have historically not been reflected in the condensed consolidated and combined statements of financial condition. In connection with the Company's reorganization and IPO, the Company became subject
to U.S. corporate federal and state income tax on its allocable share of results of operations from Group LP.
The
Company accounts for income taxes in accordance with ASC 740, "Accounting for Income Taxes" ("ASC 740"), which requires the
recognition of tax benefits or expenses on temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in
which the differences are expected to reverse. Such net tax effects on temporary differences are reflected on the Company's condensed consolidated and combined statements of financial condition as
deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more-likely- than-not that some portion or all of the deferred tax
assets will not be realized.
ASC
740-10 prescribes a two-step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect
amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and
adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. For the three months ended March 31, 2015 and 2014, no unrecognized tax benefit was
recorded. To the extent that the Company's assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate
will be recorded in the period in which such determination is made. The Company reports income tax-related interest and penalties, if applicable, as a component of income tax expense. For the three
months ended March 31, 2015 and 2014, no such amounts were recorded.
Foreign Currency TranslationAssets and liabilities held in non-U.S. dollar denominated (functional) currencies are translated into U.S. dollars
at
exchange rates in effect at the end of the reporting period. Revenues and expenses are translated at average exchange rates during the reporting period. A charge or credit is recorded to other
comprehensive income to reflect the translation of these amounts to the extent the non-U.S. currency is designated the functional currency of the subsidiary. Non-functional currency related
transaction gains and losses are immediately recorded in the condensed consolidated and combined statements of operations.
15
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
3. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 requires a company to recognize revenue in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for services provided. The amendment requires enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenues and cash flows from contracts with customers. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15,
2016, with early adoption prohibited. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on its condensed consolidated and combined financial statements.
In
January 2015, the FASB issued ASU No. 2015-01, "Income StatementExtraordinary and Unusual Items" ("ASU 2015-01"). ASU 2015-01 eliminates the concept of
extraordinary items under U.S. GAAP. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2015, with early adoption
permitted. The amendments may also be applied retrospectively to all prior periods in the financial statements. The adoption of ASU 2015-01 will have not a material impact on the Company's condensed
consolidated and combined financial statements.
In
February 2015, the FASB issued ASU No. 2015-02, "Amendments to the Consolidation Analysis" ("ASU No. 2015-02") to provide consolidation guidance for limited
partnerships, limited liability companies and securitization structures. In addition to reducing the number of consolidation models, the new standard places more emphasis on risk of loss when
determining a controlling financial interest. ASU No. 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company
is currently evaluating the impact of the pending adoption of ASU No. 2015-02 on its condensed consolidated and combined financial statements.
4. BUSINESS CHANGES AND DEVELOPMENTS
Moelis Brazil
In August 2014, the Company established Moelis Brazil, a new corporate entity located in São Paulo, Brazil for the
purpose of providing investment banking advisory services to clients in Brazil and increasing the global reach of the Company. The Company owns a 94% interest in Moelis Brazil and the remaining 6% is
owned by senior bankers of the newly formed entity. As the majority owner of Moelis Brazil, the Company consolidates its financial results.
Reorganization and Initial Public Offering
In April 2014, Old Holdings reorganized its business in connection with the IPO of 7,475,000 shares of Class A common stock by
Moelis & Company, a newly-formed Delaware corporation. Following the reorganization, the advisory operations are owned by Group LP and Group LP is controlled by Moelis &
Company. The shareholders are entitled to receive a portion of the economics of the operations through their direct ownership interests in shares of Class A common stock of Moelis &
Company. The existing owners of Group LP will continue to receive the majority of the economics of the operations, as noncontrolling interest holders, primarily through direct and indirect
ownership interests in Group LP partnership units. As a corporation, Moelis & Company is subject to
16
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
4. BUSINESS CHANGES AND DEVELOPMENTS (Continued)
United
States federal and state corporate income taxes, which is resulting in a material increase in the applicable tax rates and current tax expense incurred post reorganization.
Group LP
has one principal class of units, Class A partnership units. Group LP issued Class A partnership units to Moelis & Company and to certain
existing holders of Old Holdings units. Following the reorganization, each Group LP Class A partnership unit (not held by Moelis & Company or its subsidiaries) is exchangeable
into one share of Moelis & Company Class A common stock. In addition, Group LP issued Class B partnership units to Moelis & Company. The Class B partnership
units correspond with the economic rights of shares of Moelis & Company Class B common stock. The economic rights of Class B common stock are based on the ratio of the
Class B subscription price to the initial public offering price of shares of Class A common stock (.00055 to 1), and the aggregate number of shares of Class B common stock may be
converted to Class A common stock (up to a maximum of 20,000 shares). Holders of shares of Class B common stock are entitled to receive dividends of the same type as any dividends
payable on outstanding shares of Class A common stock at a ratio of .00055 to 1.
Group LP
Class A partnership unitholders have no voting rights by virtue of their ownership of Group LP Class A partnership units, except for the limited
rights described in Group LP's Amended and Restated Agreement of Limited Partnership. Moelis & Company Partner Holdings LP holds all shares of Class B common stock,
enabling it initially to exercise majority voting control over Moelis & Company. Among other items, Class B common stock contains a condition (the "Class B Condition") that calls
for Mr. Moelis to maintain a defined minimum equity stake. So long as the Class B Condition is satisfied, each share of Class B common stock entitles its holder to ten votes for
each share held of record on all matters submitted to a vote of stockholders. Shares of Class B common stock are generally not transferrable and, if transferred other than in the limited
circumstances set forth in Moelis & Company's Amended and Restated Certificate of Incorporation, such shares shall automatically convert into a number of shares of Class A common stock,
or dollar equivalent, set forth in Moelis & Company's Amended and Restated Certificate of Incorporation. Upon failure of the Class B Condition, each share of Class B common stock
will have one vote for each share held. Each share of Class B common stock may, at the option of the holder, be converted into a number of shares of Class A common stock, or dollar set
forth in Moelis & Company's Amended and Restated Certificate of Incorporation.
Secondary Offering
In November 2014, the Company completed a secondary offering of 6,325,000 shares of Class A common stock in order to facilitate
organized liquidity and increase the public float of its Class A common stock. In connection with the offering, the shares of Class A common stock outstanding of the Company increased by
4,511,058 shares as a result of the Company acquiring
additional Class A partnership units in Group LP. The Company did not retain any proceeds from the secondary offering.
17
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
5. EQUITY METHOD INVESTMENTS
Investment in Joint Venture
On April 1, 2010, the Company entered into a 50-50 joint venture in Moelis Australia Holdings, investing a combination of cash
and certain net assets of its wholly-owned subsidiary, Moelis Australia, in exchange for its interests. The remaining 50% is owned by an Australian trust established by and for the benefit of Moelis
Australia senior executives.
For
the three months ended March 31, 2015 and 2014, $312 of income and $1,220 of loss was recorded on this investment, respectively.
During
the three months ended March 31, 2014, the Company made a cash contribution to Moelis Australia Holdings in the amount of $4,180. The Company treated this contribution as
an increase in equity method investments in the condensed consolidated and combined financial statements.
Other Equity Method Investment
In June 2014, the Company made an investment of $265 into an entity which invests in funds and is controlled by a related party, Moelis
Asset Management LP. The Company has determined that it should account for this investment as an equity method investment on the condensed consolidated and combined financial statements. For
the three months ended March 31, 2015, $2,553 of income was recorded on this investment.
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements, net consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
Office equipment |
|
$ |
9,530 |
|
$ |
9,387 |
|
Furniture and fixtures |
|
|
2,480 |
|
|
2,258 |
|
Leasehold improvements |
|
|
6,138 |
|
|
5,931 |
|
|
|
|
|
|
|
|
|
Total |
|
|
18,148 |
|
|
17,576 |
|
Less accumulated depreciation and amortization |
|
|
(10,858 |
) |
|
(10,238 |
) |
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net |
|
$ |
7,290 |
|
$ |
7,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expenses for fixed assets totaled $620 and $533 for the three months ended March 31, 2015 and 2014, respectively.
18
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
7. FAIR VALUE MEASUREMENTS
The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Financial instruments
measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1Quoted
prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the
extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the
quoted price.
Level 2Pricing
inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value
is determined through the use of models or other valuation methodologies. The estimated fair values of government securities money markets and U.S. Treasury Bills classified in Level 2 as of
March 31, 2015 and December 31, 2014 are based on quoted prices for recent trading activity in identical or similar instruments. The Company generally invests in U.S. Treasury Bills with
maturities of less than six months.
Level 3Pricing
inputs are unobservable for the instruments and include situations in which there is little, if any, market activity for the investments. The inputs into the
determination of fair value require significant judgment or estimation by the Company's management.
See
Note 2 for further information on the Company's fair value hierarchy.
The
following tables summarize the levels of the fair value hierarchy into which the Company's financial assets and liabilities fall as of March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Government securities money market |
|
$ |
54,009 |
|
$ |
|
|
$ |
54,009 |
|
$ |
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury bills |
|
|
9,998 |
|
|
|
|
|
9,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
64,007 |
|
$ |
|
|
$ |
64,007 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
7. FAIR VALUE MEASUREMENTS (Continued)
The
following table summarizes the levels of the fair value hierarchy into which the Company's financial assets fall as of December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Government securities money market |
|
$ |
128,739 |
|
$ |
|
|
$ |
128,739 |
|
$ |
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury bills |
|
|
39,997 |
|
|
|
|
|
39,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
168,736 |
|
$ |
|
|
$ |
168,736 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's methodology for reclassifications impacting the fair value hierarchy is that transfers in/out of the respective category are reported at fair value as of the beginning of
the period in which the reclassification occurred. There were no investments classified as Level 3 as of March 31, 2015. The changes to the Company's investment classified as
Level 3 are as follows for the three months ended March 31, 2014.
|
|
|
|
|
|
|
Common Stock |
|
January 1, 2014 |
|
$ |
1,904 |
|
Non-cash settlement of customer receivable |
|
|
1,000 |
|
Distribution to Parent |
|
|
(2,904 |
) |
|
|
|
|
|
March 31, 2014 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) related to investment still held as of March 31, 2014 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
were no transfers between Level 1, Level 2 or Level 3 during the three months ended March 31, 2015 and 2014.
Investment Risk Factors and Concentration of Investments
The Company's financial instruments are subject to the following risk factors:
Market risk represents the loss that can be caused by a change in the fair value of a financial instrument.
The Company is exposed to the risk that the exchange rate of the U.S. dollar relative to other currencies may have an adverse effect on
the reported value of the Company's non-U.S. dollar denominated or based assets and liabilities.
20
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
8. NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
The calculations of basic and diluted net income (loss) per share attributable to holders of shares of Class A common stock for the three months ended March 31, 2015 are
presented below.
|
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
Three Months
Ended
March 31,
2015 |
|
Numerator: |
|
|
|
|
Net income (loss) attributable to holders of shares of Class A common stockbasic |
|
$ |
5,336 |
|
Add (deduct) dilutive effect of: |
|
|
|
|
Noncontrolling interests related to Class A partnership units |
|
|
|
(a) |
|
|
|
|
|
Net income (loss) attributable to holders of shares of Class A common stockdiluted |
|
$ |
5,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
Weighted average shares of Class A common stock outstandingbasic |
|
|
19,730,182 |
|
Add (deduct) dilutive effect of: |
|
|
|
|
Noncontrolling interests related to Class A partnership units |
|
|
|
(a) |
Weighted average number of incremental shares issuable from unvested restricted stock, RSUs and stock options, as calculated using the treasury stock
method |
|
|
1,218,784 |
(b) |
|
|
|
|
|
Weighted average shares of Class A common stock outstandingdiluted |
|
|
20,948,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to holders of shares of Class A common stock |
|
|
|
|
Basic |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
allocation of income (loss) to Class A shareholders only began following the IPO closing on April 22, 2014.
We
have not included the impact of Class B common stock because these shares are entitled to an insignificant amount of economic participation.
- (a)
- Class A
partnership units may be exchanged for Moelis & Company Class A common stock on a one-for-one basis, subject to applicable
lock-up, vesting and transfer restrictions. If all Class A partnership units were to be exchanged for Class A common stock, fully diluted Class A common stock outstanding would be
55,355,971 for the three months ended March 31, 2015. In computing the dilutive effect, if any, that the aforementioned exchange would have on net income (loss) per share, net income (loss)
available to holders of Class A common stock would be adjusted due to the elimination of the noncontrolling interests in consolidated entities associated with the Group LP
21
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
8. NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS (Continued)
Class A
partnership units (including any tax impact). For the three months ended March 31, 2015, such exchange is not reflected in diluted net income (loss) per share as the assumed
exchange is not dilutive.
- (b)
- During
the three months ended March 31, 2015, certain shares of Moelis & Company's Class A common stock assumed to be issued pursuant
to certain RSUs as calculated using the treasury stock method were antidilutive and therefore have been excluded from the calculation of diluted net income (loss) per share attributable to
Moelis & Company. The additional weighted average amount of RSUs that would have been included in this calculation if the effect were dilutive would have been 575,287 units for the three months
ended March 31, 2015.
9. EQUITY-BASED COMPENSATION
Partnership Units
Prior to the Company's restructuring and IPO, the Parent's ownership structure was comprised of common partners (principally outside
investors) holding units and employees holding units, which collectively represented the partnership interests in the Parent and evidence of the right to receive distributions and allocations of net
profit and losses as defined in the Parent Limited Partnership Agreement. The common partners contributed capital to the Parent and are not subject to vesting. Units granted to Managing Directors upon
joining the Company and as part of annual incentive compensation generally vested based on service over five to eight years. Certain non-Managing Director employees were granted units as part of their
incentive arrangements and these units generally vest based on service ratably over four years. In connection with the Company's restructuring and IPO, substantially all of the Managing Director
partner equity subject to vesting had been accelerated. Units granted to non-Managing Director employees were not accelerated in connection with the Company's restructuring and IPO and continue to
vest based on the original terms of the grant.
In
connection with the reorganization and IPO, Group LP issued Class A partnership units to Moelis & Company and to certain existing holders of Old Holdings.
Following the reorganization, a Group LP Class A partnership unit (not held by Moelis & Company or its subsidiaries) is exchangeable into one share of Moelis & Company
Class A common stock and represents the Company's noncontrolling interests. As of March 31, 2015, partners held 34,479,961 Group LP partnership units, 719,720 of which were
unvested and will continue to vest over their service life.
For
the three months ended March 31, 2015 and 2014, the Company recognized compensation expenses of $1,066 and $11,010, respectively in relation to vesting of units. As of
March 31, 2015, there was $8,402 of unrecognized compensation expense related to unvested Class A partnership units. The Company expects to recognize the unrecognized compensation
expense at March 31, 2015, over a weighted-average period of 2.5 years, using the graded vesting method.
22
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
9. EQUITY-BASED COMPENSATION (Continued)
2014 Omnibus Incentive Plan
In connection with the IPO, the Company adopted the Moelis & Company 2014 Omnibus Incentive Plan (the "Plan") to provide
additional incentives to selected officers, employees, Managing Directors, non-employee directors, independent contractors, partners, senior advisors and consultants. The Plan provides for the
issuance of incentive stock options ("ISOs"), nonqualified stock options, stock appreciation rights ("SARs"), restricted stock, RSUs, stock bonuses, other stock-based awards and cash awards.
In
the first quarter of 2015, the Board of Directors authorized the repurchase of up to $25 million of shares of Class A common stock of the Company and/or Class A
partnership units of Group LP with no expiration date. Under this share repurchase program, shares may be repurchased from time to time in open market transactions, in privately negotiated
transactions or otherwise. The timing and the actual number of shares repurchased will be opportunistic and measured in nature and will depend on a variety of factors, including price and market
conditions.
Restricted Stock and Restricted Stock Units (RSUs)
Pursuant to the Plan and in connection with the Company's annual compensation process and ongoing hiring process, the Company has
issued 2,206,490 RSUs in 2015 which generally vest over a service life of four to five years. For the three months ended March 31, 2015, the Company recognized expenses of $6,424 related to
these awards.
The
following table summarizes activity related to restricted stock and RSUs for the three months ended March 31, 2015.
|
|
|
|
|
|
|
|
|
|
Restricted Stock & RSUs |
|
|
|
Number of
Shares |
|
Weighted Average
Grant Date
Fair Value |
|
Unvested Balance at January 1, 2015 |
|
|
2,473,624 |
|
$ |
25.86 |
|
Granted |
|
|
2,206,490 |
|
|
32.28 |
|
Forfeited |
|
|
(8,610 |
) |
|
29.92 |
|
Vested |
|
|
(22,841 |
) |
|
29.73 |
|
|
|
|
|
|
|
|
|
Unvested Balance at March 31, 2015 |
|
|
4,648,663 |
|
$ |
28.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2015, the total compensation expense related to unvested restricted stock and RSUs not yet recognized was $99,462. The Company assumes a forfeiture rate of 3%
annually based on expected turnover and periodically reassesses this rate. The weighted-average period over which this compensation expense is expected to be recognized at March 31, 2015 is
3.1 years.
During
the three months ended March 31, 2015, the Company repurchased 6,043 shares at an average price of $32.17 per share in conjunction with the payment of tax liabilities in
respect of stock delivered to its employees in settlement of RSUs. In addition, during the three months ended March 31, 2015, the Company repurchased in conjunction with the share repurchase
program 129,863 shares of its common stock at an average price of $31.82 per share.
23
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
9. EQUITY-BASED COMPENSATION (Continued)
Stock Options
Pursuant to the Plan, the Company issued 3,501,881 stock options in 2014 which vest over a five-year period. The Company estimates the
fair value of stock option awards using the Black-Scholes valuation model with the following assumptions:
|
|
|
|
|
|
|
Assumptions |
|
Expected life (in years) |
|
|
6 |
|
Weighted-average risk free interest rate |
|
|
1.91 |
% |
Expected volatility |
|
|
35 |
% |
Dividend yield |
|
|
2.72 |
% |
Weighted-average fair value at grant date |
|
$ |
6.70 |
|
The
following table summarizes activity related to stock options for the three months ended March 31, 2015.
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
|
|
Number
Outstanding |
|
Weighted-Average
Exercise Price
Per Share |
|
Outstanding at January 1, 2015 |
|
|
3,296,906 |
|
$ |
24.00 |
|
Grants |
|
|
|
|
|
|
|
Exercises |
|
|
|
|
|
|
|
Forfeiture or expirations |
|
|
(40,300 |
) |
|
24.00 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015 |
|
|
3,256,606 |
|
$ |
24.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2015, the Company recognized expense of $1,059 related to these stock options. As of March 31, 2015, the total compensation expense
related to unvested stock options not yet recognized was $14,647. The Company assumes a forfeiture rate of 3% annually based on expected turnover and periodically reassesses this rate. This
compensation expense is expected to be recognized over a weighted-average period of 3.6 years.
10. STOCKHOLDERS EQUITY
Class A Common Stock
IPO and Reorganization
In April 2014, the Company issued 15,263,653 shares of Class A common stock as
follows:
-
- 7,699,851 shares in connection with the reorganization;
-
- 7,475,000 shares in connection with the IPO; and
-
- 88,802 shares in connection with the settlement of appreciation rights issued in prior years.
24
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
10. STOCKHOLDERS EQUITY (Continued)
Secondary Offering
In November 2014, the Company completed a secondary offering of 6,325,000 shares of Class A common stock in order to facilitate
organized liquidity and increase the public float of its Class A common stock. In connection with the offering, the shares of Class A common stock outstanding of the Company increased by
4,511,058 shares as a result of the Company acquiring additional Class A partnership units in Group LP. The Company did not retain any proceeds from the secondary offering.
As
of March 31, 2015, 19,793,132 shares of Class A common stock were issued and 19,657,226 shares were outstanding.
Class B Common Stock
In conjunction with Moelis & Company's IPO of its Class A common stock, the Company issued 36,158,698 shares of
Class B common stock. The economic rights of Class B common stock are based on the ratio of the Class B subscription price to the initial public offering price of shares of
Class A common stock (.00055 to 1), and the aggregate number of shares of Class B common stock may be converted to Class A common stock (up to a maximum of 20,000 shares). Holders
of shares of Class B common stock are entitled to receive dividends of the same type as any dividends payable on outstanding shares of Class A common stock at a ratio of .00055 to 1. As
of March 31, 2015, 31,617,704 shares of Class B common stock were issued and outstanding.
Treasury Stock
During the three months ended March 31, 2015 , the Company repurchased 129,863 Class A common stock at an average price
of $31.82 per share pursuant to the Company's share repurchase program, as well as 6,043 restricted stock units from employees at the time of vesting to settle tax liabilities at an average price of
$32.17 per unit. The result of the repurchases was an increase in Treasury Stock of $4,327 on the Company's condensed consolidated and combined statement of financial condition as of March 31,
2015.
Noncontrolling Interests
In connection with the Company's reorganization, Group LP issued Class A partnership units to Moelis & Company and
to certain existing holders of Old Holdings. Following the reorganization, a Group LP Class A partnership unit (not held by Moelis & Company or its subsidiaries) is exchangeable
into one share of Moelis & Company Class A common stock and represents the Company's noncontrolling interests (non-redeemable). As of March 31, 2015, partners held 34,479,961
Group LP partnership units, representing a 64% noncontrolling interest in Moelis & Company.
Moelis &
Company operates and controls all of the business and affairs of Group LP and its operating entity subsidiaries indirectly through its equity interest in
Group GP, and thus the 19,657,226 shares of Class A common stock outstanding at March 31, 2015 represents the controlling interest.
25
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
11. RELATED-PARTY TRANSACTIONS
Aircraft LeaseOn April 21, 2010, Manager acquired an aircraft with funds received solely from its managing member (Mr. Moelis). Manager
was obligated to bear all depreciation and other costs of operating the aircraft related to uses other than for the Company's business. To the extent the Company utilized the aircraft for business;
the Company was obligated to incur such expenses. For the three months ended March 31, 2014, the Company recorded expenses of $401 for use of the aircraft.
In
connection with the restructuring and IPO, Manager could no longer operate the aircraft for use in the Company's business and as a result, the arrangement under which the plane was
provided to the Company for its use was required to be restructured. Starting on April 15, 2014, the aircraft was used by the Company pursuant to a ten-year dry lease with Manager, the terms of
which were comparable to the market rates of leasing from an independent third party. Consistent with such dry lease arrangement, the Company was obligated to bear all the costs of operating the
aircraft. While the primary use of the aircraft was for business purposes, because of the benefit afforded to the Company in terms of security and productivity while traveling for personal reasons,
the Company entered into a timesharing agreement with Mr. Moelis to allow him to use the aircraft for personal use. Under such
timesharing agreement, Mr. Moelis was required to reimburse the Company for the maximum amount of reimbursement allowed by applicable Federal Aviation Administration rules. Such amounts are
included in prepaid expenses and other assets on the condensed consolidated and combined statements of financial condition. During the third quarter of fiscal 2014, Manager sold the aircraft and the
ten-year dry lease was terminated.
On
August 30, 2014, Manager acquired a new aircraft with funds received solely from its managing member (Mr. Moelis). The aircraft is used and operated by the Company
pursuant to a dry lease with Manager which terminates on December 31, 2019. The terms of the dry lease are comparable to the market rates of leasing from an independent third party. Pursuant to
this dry lease arrangement, the lessee is obligated to bear its share of the costs of operating the aircraft. For the three months ended March 31, 2015, the Company incurred $312 in aircraft
lease costs to be paid to Manager. In addition, there are two other lessees of the aircraft; one of whom is Mr. Moelis and the other is Moelis Asset Management LP. These lessees share
the lease, operating and related costs of the plane in proportion to their respective use pursuant to a cost sharing and operating agreement.
Promissory NotesAs of March 31, 2015, there were $119 of unsecured promissory notes from employees held by the Company (December 31,
2014: $119). Any outstanding balances are reflected in other receivables on the condensed consolidated and combined statements of financial condition. The notes held as of March 31, 2015 and
December 31, 2014 bear a fixed interest rate of 4.00%. During the three months ended March 31, 2015 and 2014, the Company received $0 and $686, respectively of principal repayments and
recognized interest income of $1 and $4, respectively, on such notes, which is included in other income and expenses on the condensed consolidated and combined statements of operations.
Expense AllocationsPrior to the Company's IPO in April of 2014, certain expenses have been allocated from the Parent based on the most relevant
measure, including relative usage or proportion of the Company's headcount to that of the Parent. For the three months ended March 31, 2014, $2,316 of occupancy expenses have been allocated to
the Company based on the proportion of the Company's
26
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
11. RELATED-PARTY TRANSACTIONS (Continued)
headcount
to that of the Parent. For the three months ended March 31, 2014, $2,745 of communication, technology and information services expense have been allocated to the Company based on a
combination of relative usage and the proportion of the Company's headcount to that of the Parent. All other expenses were specifically identifiable to the Company.
Management
believes the assumptions and allocations underlying the condensed consolidated and combined financial statements are reasonable and the allocated amounts are representative of
the amounts that would have been recorded in the condensed consolidated and combined financial statements had the Company operated independent of the Parent for the historical periods presented.
Services AgreementIn connection with the Company's IPO, the Company entered into a services agreement with a related party, Moelis Asset
Management LP, whereby the Company provides certain administrative services, technology, and office space to Moelis Asset Management LP for a fee. For the three months ended
March 31, 2015, this fee totaled $446. The amount of the fee is based upon the estimated usage and related expense of all shared services between the Company and Moelis Asset
Management LP during the relevant period, and will be assessed periodically by Management as per the terms of the agreement. As of March 31, 2015 and December 31, 2014 the Company
had balances due from Moelis Asset Management LP of $0 and $79, respectively.
Joint VentureAs of March 31, 2015, the Company had a net balance due to the Australian JV (see Note 5) of $78 and a net balance due
from of $945 as of December 31, 2014, which are reflected in other receivables on the condensed consolidated and combined statements of financial condition. This balance consists of amounts due
to the Australian JV for advisory services performed and billable expenses incurred on behalf of the Company during the period, offset by expenses paid by the Company on behalf of the Australian JV.
The relationship between the Company and the Australian JV is governed by a services agreement.
Other Equity Method InvestmentIn June of 2014, the Company made an investment of $265 into an entity controlled by a related party, Moelis Asset
Management LP. The Company has determined that it should account for this investment as an equity method investment on the condensed consolidated and combined financial statements. For the
three months ended March 31, 2015, income of $2,553 was recorded on this investment.
RevenuesFrom time to time, the Company enters into advisory transactions with Moelis Asset Management LP and its affiliates. For the three
months ended March 31, 2015 and 2014, the Company earned revenues of $742 and $0, respectively, associated with such transactions.
12. REGULATORY REQUIREMENTS
Under the SEC Uniform Net Capital Rule (SEC Rule 15c3-1) Alternative Standard under Section (a)(1)(ii), the minimum net capital requirement is $250. At March 31,
2015, Moelis U.S. had net capital of $32,769, which was $32,519 in excess of its required net capital. At December 31, 2014, Moelis U.S. had net capital of $80,270 which was $80,020 in excess
of its required net capital.
27
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
12. REGULATORY REQUIREMENTS (Continued)
Moelis
U.S. does not carry customer accounts and does not otherwise hold funds or securities for, or owe money or securities to, customers and accordingly is exempt under
Section (k)(2)(ii) of SEC Rule 15c3-3.
At
March 31, 2015, the aggregate regulatory net capital of Moelis UK was $18,923 which exceeded the minimum requirement by $18,868. At December 31, 2014, the aggregate
regulatory net capital of Moelis UK was $22,980, which exceeded the minimum requirement by $22,919.
13. COMMITMENTS AND CONTINGENCIES
Bank Line of CreditThe Company maintains an unsecured revolving credit facility and as of March 31, 2015, the commitment amount was $25,000
and matures on June 30, 2015.
Borrowings
on the facility bear interest at the greater of a fixed rate of 3.50% per annum or at the borrower's option of (i) LIBOR plus 1% or (ii) Prime minus 1.50%. As of
March 31, 2015 and 2014, the Company had no borrowings under the credit facility.
As
of March 31, 2015, the Company's available credit under this facility was $16,781 as a result of the issuance of an aggregate amount of $8,219 of various standby letters of
credit, which were required in connection with certain office lease and other agreements. The Company incurs a 1% per annum fee on the outstanding balance of issued letters of credit.
LeasesThe Company maintains operating leases with expiration dates that extend through 2023. The Company incurred expense relating to its
operating
leases of $3,242 and $2,618 for the three months ended March 31, 2015 and 2014, respectively.
The
future minimum rental payments required under the operating leases in place at March 31, 2015 are as follows:
|
|
|
|
|
Fiscal year ended
|
|
Amount |
|
Remainder of 2015 |
|
$ |
10,855 |
|
2016 |
|
|
14,142 |
|
2017 |
|
|
13,914 |
|
2018 |
|
|
13,814 |
|
2019 |
|
|
13,756 |
|
Thereafter |
|
|
11,202 |
|
|
|
|
|
|
Total |
|
$ |
77,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual ArrangementsIn the normal course of business, the Company enters into contracts that contain a variety of representations and warranties
and which provide indemnification for specified losses, including certain indemnification of certain officers, directors and employees.
Joint Venture Put and Call OptionsIn connection with the Company's Australian JV, the Company granted a put option in April 2010 enabling the key
senior Australian executive to sell his shares held in the Australian JV back to the Company at fair value. The put option can be exercised if the key
28
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
13. COMMITMENTS AND CONTINGENCIES (Continued)
senior
Australian executive ceases to be employed by the Australian JV (including due to death, disability or resignation but excluding termination for cause) and following such cessation of
employment, the key senior Australian executive, the remaining Australian executives and the Company are unable to agree upon a restructuring of the Australian JV. If the put option is exercised, the
Company will be required to pay 50% of the purchase price upon exercise and the remaining balance within 18 months (in cash or listed stock). In addition, since April 2010, the Company has held
a call option to purchase the shares from the Trust at fair value with payment terms equal to those called for under the put option.
LegalThere are no legal actions pending or, to management's knowledge, threatened against the Company or any of its combined entities, other than
ordinary course of business actions that we believe will not have a material adverse effect on our business or financial statements.
14. EMPLOYEE BENEFIT PLANS
The Company covers substantially all salaried employees with a defined contribution 401(k) plan. Each salaried employee of the Company who has attained the age of 21 is eligible to
participate in the 401(k) plan on their first day of employment. Any employer contributions to the 401(k) plan are entirely at the discretion of the Company. The Company accrued expenses relating to
employer matching contributions to the 401(k) plan for the three months ended March 31, 2015 and 2014 in the amount of $296 and $313, respectively.
15. INCOME TAXES
Prior to the Company's reorganization and IPO of Moelis & Company, the Company had been primarily subject to the New York City unincorporated business tax ("UBT") and certain
other foreign, state and local taxes. The Company's operations were historically comprised of entities that are organized as limited liability companies and limited partnerships. For U.S. federal
income tax purposes, taxes related to income earned by these entities represent obligations of the individual partners and members and have historically not been reflected in the condensed
consolidated and combined statements of financial condition. In connection with the Company's reorganization and IPO, the
Company became subject to U.S. corporate federal, state and local income tax on its allocable share of results of operations from Group LP. The Company's provision for income taxes and
effective tax rate were $4.3 million and 18% and $0.6 million and 3% for the three months ended March 31, 2015 and 2014, respectively. The effective tax rates for the
aforementioned periods primarily reflect the effect of the Company's allocable share of earnings from Group LP becoming subject to U.S. federal, state and local corporate income taxes in
connection with the Company's reorganization and IPO.
The
Company recorded a decrease in the net deferred tax asset of $931 for the three months ended March 31, 2015, which primarily relates to the amortization of the step-up in tax
basis in Group LP assets resulting from the IPO and secondary offering.
29
Table of Contents
Moelis & Company
Notes to the Condensed Consolidated and Combined Financial Statements (Continued)
(Unaudited)
(dollars in thousands)
16. BUSINESS INFORMATION
The Company's activities as an investment banking advisory firm constitute a single business segment offering clients, including corporations, governments and financial sponsors, a range
of advisory services with expertise across all major industries in mergers and acquisitions, recapitalizations and restructurings and other corporate finance matters.
We
do not allocate our revenue by the type of advice we provide because of the complexity of the transactions on which we may earn revenue and our comprehensive approach to client
service. For example, a restructuring engagement may evolve to require a sale of all or a portion of the client, M&A assignments can develop from relationships established on prior restructuring
engagements and capital markets expertise can be instrumental on both M&A and restructuring assignments.
There
was one client in the three months ended March 31, 2015 and one client in the three months ended March 31, 2014, which accounted for more than 10% of revenues. There
were no other clients that accounted for more than 10% of revenues for the three months ended March 31, 2015 and 2014. Since the financial markets are global in nature, the Company generally
manages its business based on the operating results of the enterprise taken as whole, not by geographic region. The following table sets forth the geographical distribution of revenues and assets
based on the location of the office that generates the revenues or holds the assets, and therefore may not be reflective of the geography in which our clients are located.
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|
|
2015 |
|
2014 |
|
Revenues: |
|
|
|
|
|
|
|
United States |
|
$ |
69,431 |
|
$ |
97,905 |
|
Europe |
|
|
25,422 |
|
|
10,549 |
|
Rest of World |
|
|
4,559 |
|
|
6,063 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
99,412 |
|
$ |
114,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
Assets: |
|
|
|
|
|
|
|
United States |
|
$ |
273,413 |
|
$ |
378,573 |
|
Europe |
|
|
31,622 |
|
|
52,975 |
|
Rest of World |
|
|
29,899 |
|
|
32,701 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
334,934 |
|
$ |
464,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. SUBSEQUENT EVENTS
On April 23, 2015, the Board of Directors of Moelis & Company declared a quarterly dividend of $0.20 per share. The dividend will be paid on June 9, 2015 to common
stockholders of record on May 26, 2015.
30
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our
unaudited condensed consolidated and combined financial statements and related notes included elsewhere in this Form 10-Q and our audited consolidated and combined financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Forward-Looking Statements and Certain Factors that May Affect Our Business
The following discussion should be read in conjunction with our condensed consolidated and combined financial statements and the
related notes that appear elsewhere in this Form 10-Q. We have made statements in this discussion that are forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "intend," "predict," "potential" or "continue," the negative of these terms and
other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties, and assumptions about us, may include projections of our future financial performance, based
on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important
factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied
by the forward- looking statements. In particular, you should consider the numerous risks outlined under "Risk Factors" in our Annual Report on Form 10-K.
Although
we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as a
prediction of future events. We are under no duty to and we do not undertake any obligation to update or review any of these forward-looking statements after the date of this filing to conform our
prior statements to actual results or revised expectations whether as a result of new information, future developments or otherwise.
Executive Overview
Moelis & Company is a leading global independent investment bank that provides innovative strategic advice and solutions to a
diverse client base, including corporations, governments and financial sponsors. With 17 offices located in North and South America, Europe, the Middle East, Asia and Australia, we advise clients
around the world on their most critical decisions, including mergers and acquisitions, recapitalizations and restructurings and other corporate finance matters.
We
were founded in July 2007 by veteran investment bankers to create a global independent investment bank that offers multi-disciplinary solutions and exceptional transaction execution.
We opened for business in New York and Los Angeles with a team of top tier advisory professionals. The dislocation in the financial services industry caused by the global financial crisis provided us
with a unique
opportunity to rapidly build a firm with global scale and broad advisory expertise, and we more than tripled our professional headcount from the end of 2008 through the end of 2011. Since our
founding, we have added new Managing Directors with sector, regional or transactional expertise and with strong client relationships. In addition, we have established recruiting programs at top
universities to hire talented junior professionals and instituted training programs to help develop them into advisory specialists.
We
have added Managing Directors to expand our sector expertise, and currently provide capabilities across all major industries including Consumer, Retail & Restaurants; Financial
Institutions;
31
Table of Contents
Financial
Sponsors; General Industrials; Healthcare; Natural Resources; Real Estate, Gaming, Lodging & Leisure and Technology, Media & Telecommunications. In addition, we hired
professionals to broaden our global reach and opened a network of offices, expanding into London in 2008, Sydney in 2009, Dubai in 2010, Hong Kong and Beijing in 2011, Frankfurt, Mumbai and Paris in
2012 and Melbourne and São Paulo in 2014. We also added regional capabilities in the U.S., opening offices in Boston in 2007, Chicago in 2008, Houston and Palo Alto in 2011 and
Washington DC in 2014. We have developed additional areas of advisory expertise to complement our strong M&A capabilities and to meet the changing needs of our clients. Our early investment in
recapitalization and restructuring talent in mid-2008 positioned us to capitalize on the significant increase in restructuring volume during the global financial crisis. In 2009, we added expertise in
advising clients on capital markets matters and advising financial institutions on complex risk exposures. Most recently in 2014, we added capabilities to provide capital raising, secondary
transaction and other advisory services to private fund sponsors and limited partners. Our ability to provide services to our clients across sectors and regions and through all phases of the business
cycle has led to long-term client relationships and a diversified revenue base.
As
of March 31, 2015, we served our clients globally with 395 advisory bankers, including 99 Managing Directors. We plan to continue to grow our firm across sectors, geographies
and products to deliver the most relevant advice and innovative solutions to our clients.
We
generate revenues primarily from providing advisory services on transactions that are subject to individually negotiated engagement letters which set forth our fees. We generally
generate fees at key transaction milestones, such as closing, the timing of which is outside of our control. As a result, revenues and net income in any period may not be indicative of full year
results or the results of any other period and may vary significantly from year to year and quarter to quarter. The performance of our business depends on the ability of our professionals to build
relationships with clients over many years by providing trusted advice and exceptional transaction execution.
Reorganization and Initial Public Offering
In April 2014, we reorganized our business in connection with Moelis & Company's IPO of 7,475,000 shares of Class A
common stock. See Note 4 in these condensed consolidated and combined financial statements and Moelis & Company's Registration Statement filed with the U.S. Securities and Exchange
Commission effective April 15, 2014 for further information.
Secondary Offering of Class A Common Stock
In November 2014, the Company completed a secondary offering of 6,325,000 shares of Class A common stock in order to facilitate
organized liquidity and increase the public float of its Class A common stock. In connection with the offering, the shares of Class A common stock outstanding of the Company increased by
4,511,058 shares as a result of the Company acquiring additional Class A partnership units in Group LP. The Company did not retain any proceeds from the secondary offering. See
Note 4 in these consolidated and combined financial statements for further information.
Business Environment and Outlook
Economic and global financial conditions can materially affect our operational and financial performance. See "Risk Factors" in our
Form 10-K for a discussion of some of the factors that can affect our performance. Revenues and net income in any period may not be indicative of full year results or the results of any other
period and may vary significantly from year to year and quarter to quarter.
During
the first quarter of 2015, the global M&A market continued to steadily improve, although different trends emerged for large-cap and mid-cap M&A activity. While the value of
announced
32
Table of Contents
transactions
above $5 billion in value increased 28% and the corresponding number of transactions increased 79% over the prior year period, the value of announced transactions between
$100 million and $5 billion increased only 5% and the corresponding number of transactions increased only 1% over the first quarter of 2014. We believe recent higher valuation multiples
and active pressure on regulated banks to tighten the availability of credit have extended M&A processes for credit-sensitive deals, which are typically more prevalent in the middle market. We expect
these M&A processes will ultimately lead to transaction announcements and completions.
In
the US, the value of announced transactions over $100 million increased 22% in the first quarter of 2015 while the corresponding number of transactions decreased 11% consistent
with slower middle market activity. In Europe, M&A activity improved in the first quarter of 2015, as the dollar volume and number of announced transactions over $100 million increased 9% and
8%, respectively. Despite slower middle market activity in the first quarter of 2015, we believe the fundamentals for a long-term steadily improving M&A cycle remain in place. The current economic
backdrop (high corporate cash balances, healthy capital markets and low interest rates) provides a solid foundation for global M&A, which we expect will offset a more subdued restructuring environment
given the continuation of low interest rates and low default rates.
Results of Operations
The following is a discussion of our results of operations for the three months ended March 31, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|
|
|
|
Variance
2014 vs. 2013 |
|
($ in thousands)
|
|
2015 |
|
2014 |
|
Revenues |
|
$ |
99,412 |
|
$ |
114,517 |
|
|
13 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
55,393 |
|
|
70,441 |
|
|
21 |
% |
Non-compensation expenses |
|
|
22,638 |
|
|
20,141 |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
78,031 |
|
|
90,582 |
|
|
14 |
% |
Operating income (loss) |
|
|
21,381 |
|
|
23,935 |
|
|
11 |
% |
Other income and expenses |
|
|
15 |
|
|
19 |
|
|
21 |
% |
Income (loss) from equity method investments |
|
|
2,865 |
|
|
(1,220 |
) |
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
24,261 |
|
|
22,734 |
|
|
7 |
% |
Provision for income taxes |
|
|
4,300 |
|
|
642 |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
19,961 |
|
$ |
22,092 |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
We operate in a highly competitive environment. Each revenue-generating engagement is separately solicited, awarded and negotiated, and
there are usually no long-term contracted sources of revenue. As a consequence, our fee-paying client engagements are predictable, and high levels of revenues in one quarter are not necessarily
predictive of continued high levels of revenues in future periods. To develop new business, our professionals maintain an active business
dialogue with a large number of existing and potential clients. We add new clients each year as our bankers continue to expand their relationships, as we hire senior bankers who bring their client
relationships and as we receive introductions from our relationship network of senior executives, board members, attorneys and
33
Table of Contents
other
third parties. We also lose clients each year as a result of the sale or merger of clients, changes in clients' senior management, competition from other financial services firms and other
causes.
We
earn substantially all of our revenues from advisory engagements, and, in many cases, we are not paid until the successful completion of an underlying transaction. Complications that
may terminate or delay a transaction include failure to agree upon final terms with the counterparty, failure to obtain required regulatory consents, failure to obtain board or stockholder approvals,
failure to secure financing, adverse market conditions or unexpected operating or financial problems related to either party to the transaction. In these circumstances, we often do not receive
significant advisory fees that would have been received if the transaction had been completed, despite the fact that we may have devoted considerable time and resources to the transaction. Barriers to
the completion of a restructuring transaction may include a lack of anticipated bidders for the assets of our client or the inability of our client to restructure its operations or indebtedness due to
a failure to reach agreement with its creditors. In these circumstances, our fees are generally limited to monthly retainer fees and reimbursement of certain out-of-pocket expenses.
We
do not allocate our revenues by the type of advice we provide (M&A, recapitalizations and restructurings or other corporate finance matters) because of the complexity of the
transactions on which we may earn revenues and our holistic approach to client service. For example, a restructuring engagement may evolve to require a sale of all or a portion of the client, M&A
assignments can develop from relationships established on prior restructuring engagements and capital markets expertise can be instrumental on both M&A and restructuring assignments.
Three Months Ended March 31, 2015 versus 2014
Revenues were $99.4 million for the three months ended March 31, 2015 compared with $114.5 million for the same
period in 2014, representing a decrease of 13%. The decline in revenues was primarily driven by fewer significant transactions closings compared to the prior year. Our results were also impacted by
the effects of extended M&A processes for credit-sensitive transactions and of a softer restructuring environment.
Operating Expenses
The following table sets forth information relating to our operating expenses, which are reported net of reimbursements by our clients:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|
|
|
|
Variance
2015 vs. 2014 |
|
($ in thousands)
|
|
2015 |
|
2014 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
$ |
55,393 |
|
$ |
70,441 |
|
|
21 |
% |
% of revenues |
|
|
56 |
% |
|
62 |
% |
|
|
|
Non-compensation expenses |
|
$ |
22,638 |
|
$ |
20,141 |
|
|
12 |
% |
% of revenues |
|
|
23 |
% |
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
78,031 |
|
$ |
90,582 |
|
|
14 |
% |
% of revenues |
|
|
78 |
% |
|
79 |
% |
|
|
|
Income (loss) before income taxes |
|
$ |
24,261 |
|
$ |
22,734 |
|
|
7 |
% |
% of revenues |
|
|
24 |
% |
|
20 |
% |
|
|
|
Our
operating expenses are classified as compensation and benefits expenses and non-compensation expenses, and headcount is the primary driver of the level of our expenses.
34
Table of Contents
Compensation
and benefits expenses account for the majority of our operating expenses. Non-compensation expenses, which include the costs of professional fees, travel and related expenses,
communication, technology and information services, occupancy, depreciation and other expenses, generally have been less significant in comparison with compensation and benefits expenses. Expenses are
recorded on the condensed consolidated and combined statements of operations, net of any expenses reimbursed by clients.
Three Months Ended March 31, 2015 versus 2014
Operating expenses were $78.0 million for the three months ended March 31, 2015 and represented 78% of revenues, compared
with $90.6 million for the same period in 2014 which represented 79% of revenues. Our income before taxes increased, improving from income of $22.7 million for the three months ended
March 31, 2014 to income of $24.3 million for the same period in 2015.
Compensation and Benefits Expenses
Our compensation and benefits expenses are determined by management based on revenues earned, the competitiveness of the prevailing
labor market and anticipated compensation requirements for our employees, the level of recruitment of new Managing Directors, the amount of compensation expenses amortized for equity awards and other
relevant factors.
Our
compensation expenses consist of base salary and benefits, annual incentive compensation payable as cash bonus awards, including certain amounts subject to clawback and contingent
upon a required period of service ("contingent cash awards") and amortization of equity-based compensation awards. Base salary and benefits are paid ratably throughout the year. Equity awards are
amortized into compensation expenses on a graded basis (based upon the fair value of the award at the time of grant) during the service period over which the award vests, which is typically four to
five years. The awards are recorded within equity as they are expensed. Contingent cash awards are amortized into compensation expenses over the required service period, which is typically two to
three years. Cash bonuses, which are accrued each quarter, are discretionary and dependent upon a number of factors including the performance of the Company and are generally paid during the first two
months of each calendar year with respect to prior year performance. The equity component of the annual incentive award is determined with reference to the Company's estimate of grant date fair value,
which in turn determines the number of equity awards granted subject to a vesting schedule.
Our
compensation expenses are primarily based upon revenues, prevailing labor market conditions and other factors that can fluctuate, including headcount, and as a result, our
compensation expenses may fluctuate materially in any particular period. Accordingly, the amount of compensation expenses recognized in any particular period may not be consistent with prior periods
or indicative of future periods.
Three Months Ended March 31, 2015 versus 2014
For the three months ended March 31, 2015, compensation-related expenses of $55.4 million represented 56% of revenues,
compared with $70.4 million which represented 62% of revenues in the prior year period. The decrease in compensation expenses primarily relates to lower revenues earned and a decrease in
equity-based compensation compared to the same period in the prior year.
Our
fixed compensation costs, which are primarily the sum of base salaries, payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards, were
$40.3 million for each of the three months ended March 31, 2015 and 2014. The aggregate amount of discretionary cash bonus expenses, which generally represents the excess amount of total
compensation over base compensation and amortization of equity and contingent cash awards, was $15.1 million and
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$30.1 million
for the three months ended March 31, 2015 and 2014, respectively. The decrease in discretionary cash bonus expense is related to lower revenues earned compared to the same
period in the prior year.
Non-Compensation Expenses
Our non-compensation expenses include the costs of occupancy, professional fees, communication, technology and information services,
travel and related expenses, depreciation and other expenses. Reimbursed client expenses are netted against non-compensation expenses.
Historically,
our non-compensation expenses, particularly occupancy and travel costs associated with business development, have increased as we have grown our business and made strategic
investments. This trend may continue as we expand into new sectors, geographies and products to serve our clients' evolving needs. In addition, we will experience increased non-compensation expenses
in connection with having become a public company.
Three Months Ended March 31, 2015 versus 2014
Non-compensation expenses were $22.6 million in the three months ended March 31, 2015, representing 23% of revenues, an
increase from the ratio of 18% in the prior year period. In addition to incremental costs associated with operating as a public company, the increase in non-compensation expenses of
$2.5 million was primarily driven by increased headcount, recruiting activity, and new business development.
Income (Loss) From Equity Method Investments
The Company accounts for its equity method investments under the equity method of accounting as the Company does not control these
entities but has the ability to exercise significant influence. The amounts recorded on the condensed consolidated and combined financial statements of financial condition reflects the Company's share
of contributions made to, distributions received from, and the equity earnings and losses of, the investments. The Company reflects its share of gains and losses of the investment in income (loss)
from equity method investments in the condensed consolidated and combined statements of operations.
On April 1, 2010, we entered into the Australian JV in Sydney, investing a combination of cash and certain net assets in
exchange for a 50% interest in the Australian JV. The remaining 50% of the Australian JV is owned by an Australian trust established by and for the benefit of Australian executives. The Australian
JV's primary business is offering advisory services, much like the Company. The Australian JV also has an equity capital markets and research, sales and trading business covering Australian public
equity securities. The Australian JV expanded into Melbourne in 2014.
Three Months Ended March 31, 2015 versus 2014
Income (loss) from equity method investments related to our share of gains and losses of the Australian JV, was income of
$0.3 million and a loss of $1.2 million for the three months ended March 31, 2015 and 2014, respectively. During the three months ended March 31, 2015, the
Australian JV generated $7.4 million of revenues and $6.8 million of expenses, resulting in net earnings of $0.6 million, of which we recognized our 50% share, or
$0.3 million. For the same period in 2014, the Australian JV generated $3.1 million of revenues and $5.6 million of expenses, resulting in a net loss of $2.4 million, of
which we recognized our 50% share, or $1.2 million. The Australian JV's revenues increased by 136% for the three months ended March 31, 2015 compared with the same period in 2014. The
Australian JV generally derives revenues from a varying number of engagements
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each
period which may result in revenues that vary significantly from period to period. Operating expenses increased 21% during the three months ended March 31, 2015 when compared with the same
period in 2014 primarily due to increased compensation and benefits expenses associated with increased revenues.
In June 2014, the Company made an investment into an entity which invests in funds and is controlled by a related party, Moelis Asset
Management LP. The Company has determined that it should account for this investment as an equity method investment on the condensed consolidated and combined financial statements.
Three Months Ended March 31, 2015 versus 2014
Income (loss) from equity method investments related to our investment in an entity which invests in funds was $2.5 million for
the three months ended March 31, 2015. This investment was made subsequent to March 31, 2014.
Provision for Income Taxes
Prior to the Company's reorganization and IPO of Moelis & Company, the Company had been primarily subject to the New York City
unincorporated business tax ("UBT") and certain other foreign, state and local taxes. The Company's operations were historically comprised of entities that are organized as limited liability companies
and limited partnerships. For U.S. federal income tax purposes, taxes related to income earned by these entities represent obligations of the individual partners and members and have historically not
been reflected in the condensed consolidated and combined statements of financial condition. In connection with the Company's reorganization and IPO, the Company became subject to U.S. corporate
federal, state and local income tax on its allocable share of result of operations from Group LP.
Three Months Ended March 31, 2015 versus 2014
During the three months ended March 31, 2015, the provision for income taxes was $4.3 million, which reflected an
effective tax rate of 18%. The income tax provision and effective tax rate for the period primarily reflect the effect of the earnings of Group LP being subject to UBT and certain other
foreign, state and local taxes and the Company's allocable share of earnings from Group LP at the prevailing U.S. federal, state and local corporate income tax rate.
During
the three months ended March 31, 2014, the provision for income taxes was $0.6 million, which reflected an effective tax rate of 3%. The income tax provision and
effective tax rate for the period reflect the earnings of Group LP being subject to UBT and certain other foreign, state and local taxes and the effect of certain nondeductible expenses,
primarily related to the vesting of partnership units. None of the earnings for the period were subject to corporate income taxes for U.S. federal, state and local tax purposes.
Liquidity and Capital Resources
Our current assets have historically comprised cash, short-term liquid investments and receivables related to fees earned from
providing advisory services. Our current liabilities include accrued expenses, including accrued employee compensation. We pay a significant portion of incentive compensation during the first two
months of each calendar year with respect to the prior year's results. We also distribute estimated partner tax payments in the first quarter of each year in respect of the prior year's operating
results. Therefore, levels of cash generally decline during the first quarter of each year after
37
Table of Contents
incentive
compensation has been paid to our employees and estimated tax payments have been distributed to partners. Cash then typically increases over the remainder of the year.
We
evaluate our cash needs on a regular basis in light of current market conditions. Cash and cash equivalents include all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. As of March 31, 2015 and December 31, 2014, the Company had cash
equivalents of $54.0 million and $128.7 million, respectively, invested in U.S. Treasury Bills and government securities money market funds. Additionally, as of March 31, 2015 and
December 31, 2014, the Company had cash of $43.9 million and $69.2 million, respectively, maintained in U.S. and non-U.S. bank accounts, of which most U.S. account balances
exceeded the FDIC coverage limit of $250,000.
In
addition to cash and cash equivalents, we hold U.S. Treasury Bills classified as investments on our statement of financial condition as they have original maturities of three months
or more from the date of purchase. As of March 31, 2015 and December 31, 2014, the Company held $10.0 million and $40.0 million of U.S. Treasury Bills classified as
investments, respectively.
Our
liquidity is highly dependent upon cash receipts from clients which are generally dependent upon the successful completion of transactions as well as the timing of receivable
collections, which typically occurs within 60 days of billing. As of March 31, 2015 and December 31, 2014 accounts receivable were $18.3 million and $23.0 million,
respectively, net of allowances of $1.5 million and $1.6 million, respectively.
To
provide for working capital and other general corporate purposes, we maintain a $25.0 million unsecured revolving credit facility that matures on June 30, 2015. Advances
on the facility bear interest at the greater of a fixed rate of 3.50% per annum or at the Company's option of (i) LIBOR plus 1% or (ii) Prime minus 1.50%. As of March 31, 2015,
the Company had no borrowings under the credit facility.
As
of March 31, 2015, the Company's available credit under this facility was $16.8 million as a result of the issuance of an aggregate amount of $8.2 million of
various standby letters of credit, which were required in connection with certain office leases and other agreements. The Company incurs a 1% per annum fee on the outstanding balances of issued
letters of credit.
On
April 23, 2015, the Board of Directors of Moelis & Company declared quarterly dividends of $0.20 per share. The dividend will be paid on June 9, 2015 to common
stockholders of record on May 26, 2015. During the three months ended March 31, 2015 the Company declared and paid dividends of $0.20 per share.
Regulatory Capital
We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective
jurisdictions to ensure general financial soundness and liquidity. This requires, among other things, that we comply with certain minimum capital requirements, record-keeping, reporting procedures,
experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to and from affiliates. See
Note 12 of the condensed consolidated and combined financial statements as of March 31, 2015 for further information. These regulations differ in the United States, United Kingdom, Hong
Kong and other countries in which we operate a registered broker-dealer. The license under which we operate in each such country is meant to be appropriate to conduct an advisory business. We believe
that we provide each of our subsidiaries with sufficient capital and liquidity, consistent with their business and regulatory requirements.
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Tax Receivable Agreement
In connection with the IPO, we entered into a tax receivable agreement with our eligible Managing Directors that provides for the
payment by us to our eligible Managing Directors of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of
(a) the increases in tax basis attributable to exchanges by our eligible Managing Directors and (b) tax benefits related to imputed interest deemed to be paid by us as a result of this
tax receivable agreement. We expect to benefit from the remaining 15% of cash savings, if any, in income tax that we realize.
In
connection with the IPO, the Company made a one-time cash distribution to certain partners of Old Holdings which is treated as an acquisition for U.S. federal income tax purposes of
Class A partnership units in Group LP from certain partners of Old Holdings. This transaction resulted in an estimated deferred tax asset of which approximately $60.8 million is
attributable to exchanges by certain of the partners of Old Holdings who are party to the tax receivable agreement. Pursuant to this agreement, 85% (or $51.6 million) of the tax benefits
associated with this portion of the deferred tax asset are payable to certain partners of Old Holdings over the next 15 years and recorded as amount due pursuant to tax receivable agreement in
the condensed consolidated and combined statements of
financial condition. The remaining tax benefit is allocable to the Company and is recorded in additional paid-in-capital.
In
connection with the secondary offering in November 2014, the Company acquired Class A partnership units in Group LP from certain partners of Group LP. This
transaction resulted in an estimated deferred tax asset of which approximately $80.1 million is attributable to exchanges by certain partners of Group LP who are party to the tax
receivable agreement. Pursuant to the tax receivable agreement, 85% (or $68.1 million) of the tax benefits associated with this portion of the deferred tax asset are payable to certain partners
of Group LP over the next 15 years and recorded as amount due pursuant to tax receivable agreement in the consolidated and combined statements of financial condition. The remaining tax
benefit is allocable to the Company and is recorded in additional paid-in-capital.
For
purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been
required to pay had there been no increase to the tax basis of the tangible and intangible assets of Group LP as a result of the exchanges and had we not entered into the tax receivable
agreement. The term of the tax receivable agreement commenced upon consummation of the IPO and will continue until all such tax benefits have been utilized or expired, unless we exercise our right to
terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement.
Payments
made under the tax receivable agreement are required to be made within 225 days of the filing of our tax returns. Because we generally expect to receive the tax savings
prior to making the cash payments to the eligible selling holders of Group LP partnership units, we do not expect the cash payments to have a material impact on our liquidity.
In
addition, the tax receivable agreement provides that, upon a merger, asset sale, or other form of business combination or certain other changes of control or if, at any time, we elect
an early termination of the tax receivable agreement, our (or our successor's) obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such change of
control or early termination) will be based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and
tax basis and other benefits related to entering into the tax receivable agreement, and, in the case of an early termination election, that any units that have not been exchanged are deemed exchanged
for the market value of the Class A common stock at the time of termination. Consequently, it is possible, in these
39
Table of Contents
circumstances,
that the actual cash tax savings realized by us may be significantly less than the corresponding tax receivable agreement payments.
Cash Flows
Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees, which are generally collected
within 60 days of billing, and the payment of operating expenses, including payments of incentive compensation to our employees. We distribute estimated partner taxes and pay a significant
portion of incentive compensation during the first two months of each calendar year with respect to the prior year's results. A summary of our operating, investing and financing cash flows is as
follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
($ in thousands)
|
|
2015 |
|
2014 |
|
Cash Provided By (Used In) |
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
19,961 |
|
$ |
22,092 |
|
Non-cash charges |
|
|
7,411 |
|
|
13,287 |
|
Other operating activities |
|
|
(115,931 |
) |
|
(80,618 |
) |
|
|
|
|
|
|
|
|
Total operating activities |
|
|
(88,559 |
) |
|
(45,239 |
) |
Investing Activities |
|
|
29,385 |
|
|
62,026 |
|
Financing Activities |
|
|
(39,777 |
) |
|
(56,428 |
) |
Effect of exchange rate changes |
|
|
(1,134 |
) |
|
(17 |
) |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(100,085 |
) |
|
(39,658 |
) |
Cash and cash equivalents, beginning of period |
|
|
197,944 |
|
|
303,024 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
97,859 |
|
$ |
263,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
Cash and cash equivalents were $97.9 million at March 31, 2015, a decrease of $100.1 million from
$197.9 million of cash and cash equivalents at December 31, 2014. Operating activities resulted in a net outflow of $88.6 million primarily attributable to the payment of
discretionary bonuses earned in 2014 during the three months ended March 31, 2015. Investing activities resulted in a net inflow of $29.4 million primarily attributable to proceeds from
sales of investments, partially offset by the purchase of investments. Financing activities resulted in a net outflow of $39.8 million primarily related to tax distributions and payment of the
quarterly dividend.
Three Months Ended March 31, 2014
Cash and cash equivalents were $263.4 million at March 31, 2014, a decrease of $39.7 million from
$303.0 million of cash and cash equivalents at December 31, 2013. Operating activities resulted in a net outflow of $45.2 million primarily attributable to annual bonus payments
made to employees. Investing activities resulted in a net inflow of $62.0 million primarily attributable to net proceeds from sales of investments of U.S. Treasury Bills. Financing activities
resulted in a net outflow of $56.4 million primarily related to tax distributions to partners.
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Table of Contents
Contractual Obligations
The following table sets forth information relating to our contractual obligations as of March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
($ in thousands)
|
|
Total |
|
Less than
1 Year |
|
1 - 3 Years |
|
3 - 5 Years |
|
More than
5 Years |
|
Operating Leases |
|
$ |
77,683 |
|
$ |
14,439 |
|
$ |
27,961 |
|
$ |
26,751 |
|
$ |
8,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
77,683 |
|
$ |
14,439 |
|
$ |
27,961 |
|
$ |
26,751 |
|
$ |
8,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
commitment table above excludes contractual amounts owed under the tax receivable agreement because the ultimate amount and timing of the amounts due are not presently known. As of
March 31, 2015, a total payable of $119.7 million has been recorded in amount due pursuant to tax receivable agreement in the consolidated and combined financial statements representing
management's best estimate of the amounts currently expected to be owed under the tax receivable agreement.
In
connection with the Company's Australian JV, the Company granted a put option enabling the key senior Australian executive to sell his shares held in the Australian JV back to the
Company at fair value upon certain defined exit events. If the put option is exercised, the Company will be required to pay 50% of the purchase price upon exercise and the remaining balance within
18 months (in cash or listed stock). In addition, the Company holds a call option, exercisable upon the occurrence of certain defined events, to purchase the shares from the Australian Trust at
fair value with the same payment terms as called for under the put option, described above.
Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage
in any activities that expose us to any liability that is not reflected in our combined financial statements except for those described under "Contractual Obligations" above.
Market Risk and Credit Risk
Our business is not capital-intensive and we do not invest in derivative instruments or, generally, borrow through issuing debt. As a
result, we are not subject to significant market risk (including interest rate risk, foreign currency exchange rate risk and commodity price risk) or credit risk.
Our cash and cash equivalents include all short-term highly liquid investments that are readily convertible to known amounts of cash
and have original maturities of three months or less from the date of purchase. We invest most of our cash in U.S. Treasury Bills and government securities money market funds. Cash is maintained in
U.S. and non-U.S. bank accounts. Most U.S. account balances exceed the FDIC coverage limit. In addition to cash and cash equivalents, we hold U.S. Treasury Bills and bank time deposits classified as
investments on our statement of financial condition as they have original maturities of three months or more (but less than twelve
months) from the date of purchase. We believe our cash and short-term investments are not subject to any material interest rate risk, equity price risk, credit risk or other market risk.
We regularly review our accounts receivable and allowance for doubtful accounts by considering factors such as historical experience,
credit quality, age of the accounts receivable, and the current economic conditions that may affect a customer's ability to pay such amounts owed to the Company.
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We
maintain an allowance for doubtful accounts that, in our opinion, provides for an adequate reserve to cover losses that may be incurred. See "Critical Accounting
PoliciesAccounts Receivable and Allowance for Doubtful Accounts."
The Company is exposed to the risk that the exchange rate of the U.S. dollar relative to other currencies may have an adverse effect on
the reported value of the Company's non-U.S. dollar denominated assets and liabilities. Non-functional currency-related transaction gains and losses are recorded in the condensed consolidated and
combined statements of operations. In addition, the reported amounts of our revenues may be affected by movements in the rate of exchange between the pound sterling and the euro and the U.S. dollar,
in which our financial statements are denominated. For the three months ended March 31, 2015, the net impact of the fluctuation of foreign currencies in other comprehensive income (loss) in the
condensed combined statements of comprehensive income was a loss of $0.8 million. We have not entered into any transactions to hedge our exposure to these foreign currency fluctuations through
the use of derivative instruments or other methods.
Critical Accounting Policies
We believe that the critical accounting policies included below represent those that are most important to the presentation of our
financial condition and results of operations and require management's most difficult, subjective and complex judgment.
The
preparation of combined financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period for which they are
determined to be necessary.
Prior
to our IPO in April of 2014, certain expenses have been allocated from Old Holdings based on the most relevant measure, including relative usage or proportion of the Company's
headcount to that of Old Holdings. Occupancy expenses have been allocated to the Company based on the proportion of the Company's headcount to that of Old Holdings, and communication, technology and
information services expenses have been allocated to the Company based on a combination of relative usage and the proportion of the Company's headcount to that of Old Holdings. All other expenses were
specifically identifiable to the Company. Management believes the assumptions and allocations underlying the condensed consolidated and combined financial statements are reasonable, and the allocated
amounts are representative of the amounts that would have been recorded in the condensed consolidated and combined financial statements had the Company operated independent of Old Holdings for the
historical periods presented.
In
connection with the Company's IPO, the Company entered into a services agreement with a related party, Moelis Asset Management LP, whereby the Company provides certain
administrative services and office space to Moelis Asset Management LP for a fee. See Note 11 for further information.
All
intercompany balances and transactions within the Company have been eliminated.
Revenue and Expense Recognition
The Company recognizes revenues from providing advisory services when earned and collection is reasonably assured. Upfront fees and
retainers are recognized over the estimated period during which the related services are to be performed. Transaction-related fees are recognized when all services for a
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transaction
have been provided, specified conditions have been met and the transaction closes. Deferred revenues are recorded for fees received that have not yet been earned. Expenses are recorded on
the combined financial statements, net of client reimbursements.
Accounts Receivable and Allowance for Doubtful Accounts
The accompanying combined statements of financial condition present accounts receivable balances net of allowance for doubtful accounts
based on the Company's assessment of the collectability of customer accounts.
The
Company maintains an allowance for doubtful accounts that, in management's opinion, provides for an adequate reserve to cover losses that may be incurred. The Company regularly
reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable, and the current economic conditions that may affect a customer's ability to
pay such amounts owed to the Company.
After
concluding that a reserved accounts receivable is no longer collectible, the Company will charge-off the receivable. This is determined based on several factors including the age
of the accounts receivable and the credit worthiness of the customer. This has the effect of reducing both the gross receivable and the allowance for doubtful accounts.
Equity-based Compensation
The Company recognizes the cost of employee services received in exchange for an equity instrument award. The cost is based on its
grant-date fair value amortized over the service period required by the award's vesting terms. Prior to the Company's IPO, the measurement of the grant-date fair value required Old Holdings to make
estimates about its future operating results and the appropriate risk-adjusted discount rates. The methods used to estimate the fair value of equity-based compensation generally included the market
approach and the income approach, each of which involve a significant degree of judgment. Under the market approach, fair value is determined with reference to observable valuation measures for
comparable companies (e.g., multiplying a key performance metric of the comparable company by a relevant valuation multipleadjusted for differences between Old Holdings and the
referenced comparable). Under the income approach, fair value is determined by converting future amounts (e.g., cash flows or earnings) to a single present amount (discounted) using current
expectations about those future amounts. Subsequent to the Company's IPO, the grant-date fair value of equity awards is based on quoted market prices at the time of grant. The Company recognizes such
amounts in compensation and benefits expenses in the accompanying condensed consolidated and combined statements of operations and as an increase to equity in the accompanying condensed consolidated
and combined statements of financial condition and changes in equity. The Company records as treasury stock shares repurchased from its employees for the purpose of settling tax liabilities incurred
upon the vesting of restricted stock units. The Company records dividend equivalent payments, net of forfeitures, on outstanding restricted stock units as a dividend payment and a charge to equity.
For
the purposes of calculating diluted net income (loss) per share to holders of Class A common stock, unvested service-based awards are included in the diluted weighted average
shares of Class A common stock outstanding using the treasury stock method.
The
Company has a retirement plan whereby a retiring employee generally will not forfeit certain qualifying incentive RSUs granted during employment if at retirement the employee
(i) is at least 54 years old and (ii) has provided at least 8 consecutive years of service to the Company. Any such RSUs will continue to vest on their applicable vesting
schedule, subject to noncompetition and other terms. Over time a greater number of employees may become retirement eligible and the related
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requisite
service period over which we will expense these awards will be shorter than the stated vesting period.
Equity Method Investments
The Company accounts for its equity method investments under the equity method of accounting as the Company does not control these
entities but has the ability to exercise significant influence. The amounts recorded on the condensed consolidated and combined financial statements of financial condition reflects the Company's share
of contributions made to, distributions received from, and the equity earnings and losses of, the investments. The Company reflects its share of gains and losses of the investment in income (loss)
from equity method investments in the condensed consolidated and combined statements of operations.
Income Taxes
Prior to the Company's reorganization and IPO, the Company had been primarily subject to the New York City UBT and certain other
foreign, state and local taxes as applicable. The Company's operations were historically comprised of entities that are organized as limited liability companies and limited partnerships. For U.S.
federal income tax purposes, taxes related to income earned by these entities represent obligations of the individual partners and members and have historically not been reflected in the condensed
consolidated and combined statements of financial condition. In connection with the Company's reorganization and IPO, the Company became subject to U.S. corporate federal and state income tax on its
allocable share of results of operations from Group LP.
The
Company accounts for income taxes in accordance with ASC 740, "Accounting for Income Taxes" ("ASC 740"), which requires the
recognition of tax benefits or expenses on temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in
which the differences are expected to reverse. Such net tax effects on temporary differences are reflected on the Company's condensed consolidated and combined statements of financial condition as
deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more-likely-than-not that some portion or all of the deferred tax
assets will not be realized.
ASC
740-10 prescribes a two-step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect
amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and
adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. For the three months ended March 31, 2015 and 2014, no unrecognized tax benefit was
recorded. To the extent that
the Company's assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period
in which such determination is made. The Company reports income tax-related interest and penalties, if applicable, as a component of income tax expense. For the three months ended March 31,
2015 and 2014, no such amounts were recorded.
Recent Accounting Developments
For a discussion of recently issued accounting developments and their impact or potential impact on our combined financial statements,
see Note 3Recent Accounting Pronouncements, of the condensed consolidated and combined financial statements included in this 10-Q.
44
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative disclosures about market risk are set forth above in "Item 2Management's Discussion
and Analysis of Financial Condition and Results of OperationsMarket Risk and Credit Risk"
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")). Based upon this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
No
change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
45
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time involved in legal proceedings incidental to the ordinary course of business. We do not believe any
such proceedings will have a material adverse effect on our results of operations.
Item 1A. Risk Factors
Except as set forth below, there have been no material changes to the Risk Factors described in Part I "Item 1A. Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission ("SEC").
Our share price may decline due to the large number of shares eligible for future sale and for
exchange.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of Class A
common stock in the market as a result of and after the offering contemplated by our Registration Statement on Form S-3 Registration No. 333-203499 or the perception that such sales
could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem
appropriate. As of April 30, 2015, we had outstanding 19,629,308 shares of Class A common stock, most of which may be resold immediately in the public market. In addition, a significant
number of holders of Group LP Class A partnership units may elect to exchange their units and they may receive shares of our Class A common stock. Further, restrictions on sales
of certain shares of Class A common stock by certain of our pre-IPO equityholders expired on April 22, 2015, and such shares are now eligible for resale from time to time, and employees
who have received shares of Class A common stock upon settlement of restricted stock units are currently able to sell such shares, subject to any blackout periods we impose on employees and
restrictions under the Securities Act of 1933, as amended (the "Securities Act"). On April 30, 2015, we entered into an agreement with Sumitomo Mitsui Banking Corporation ("SMBC"), our
strategic alliance partner, to permit SMBC, subject to the terms of the Group LP limited partnership agreement, to exchange half of its Group LP Class A partnership units
(1,280,054 units) into Moelis & Company Class A common stock on or after July 1, 2015 and the remaining 50% (1,280,053 units) on or after April 22, 2016. Existing
Group LP Class A partnership unitholders (including certain Managing Directors) owned, as of April 30, 2015, an aggregate of 34,479,961 Class A partnership units. Our
amended and restated certificate of incorporation allows the exchange of Class A partnership units in Group LP (other than those held by us) for shares of our Class A common stock
on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Further, Partner Holdings held 31,617,704 shares of our Class B
common stock, which will be convertible into 17,490 shares of our Class A common stock. Shares of Class A common stock (including those issuable upon exchange of Group LP
partnership units) that are held by the Group LP Class A partnership unitholders (including our Managing Directors) will be eligible for resale from time to time, subject to certain
contractual restrictions and to restrictions under the Securities Act.
The
general partner of Group LP ("General Partner") has determined that the first redemption date on which certain holders of Group LP Class A partnership units may
elect to exchange their units on a one-for-one basis for our Class A common stock will be on or about June 8, 2015, subject to the General Partner's discretion to postpone or cancel the
redemption date. The number of units eligible for
exchange on such date is up to 629,101 units. Holders who elect to exchange may choose to sell or hold the Class A common stock. Units eligible for exchange exclude 31,187,024 units held by
Managing Directors that they received as Managing Directors which units remain subject to lock-up provisions in three installments (which were equal installments at the time of our initial public
offering) through
46
Table of Contents
each
of the fourth, fifth and sixth anniversary of our initial public offering. The General Partner intends to establish redemption dates from time to time in the ordinary course in accordance with
the terms of the Group LP limited partnership agreement and the Company does not intend to disclose future redemption dates.
Certain
Class A partnership unitholders in Group LP and holders of our Class A common stock are parties to agreements with us pursuant to which we have granted them
registration rights. Under those agreements, these persons will have the ability to cause us to register the shares of our Class A common stock (including the shares they could acquire upon
exchange of Class A partnership units in Group LP), subject to certain contractual restrictions. See "Exchanges of Group LP Class A Partnership Units For Moelis &
Company Class A Common Stock."
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales
None.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number
of Shares
Purchased(1) |
|
Average
Price Paid
Per Share |
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs(2) |
|
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs(2) |
|
January 1 - January 31, 2015 |
|
|
2,484 |
|
$ |
33.71 |
|
|
|
|
$ |
25.0 million |
|
February 1 - February 28, 2015 |
|
|
133,115 |
|
|
31.80 |
|
|
129,863 |
|
$ |
20.9 million |
|
March 1 - March 31, 2015 |
|
|
307 |
|
|
32.18 |
|
|
|
|
$ |
20.9 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
135,906 |
|
$ |
31.84 |
|
|
129,863 |
|
$ |
20.9 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Comprised
of share repurchases and treasury transactions arising from net settlement of equity awards to satisfy minimum tax obligations.
- (2)
- In
the first quarter of 2015, the Board of Directors authorized the repurchase of up to $25 million of shares of Class A common stock of the
Company and/or Class A partnership units of Group LP with no expiration date. Under this share repurchase program, shares may be repurchased from time to time in open market
transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased will be opportunistic and measured in nature and will depend on a variety of
factors, including price and market conditions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibit Index
The list of exhibits is set forth under "Exhibit Index" at the end of this Quarterly Report on Form 10-Q and is incorporated
herein by reference.
47
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized this 8th day of May, 2015.
|
|
|
|
|
MOELIS & COMPANY |
|
|
/s/ KENNETH MOELIS
Kenneth Moelis Chief Executive Officer |
|
|
/s/ JOSEPH SIMON
Joseph Simon Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
48
Table of Contents
EXHIBIT INDEX
|
|
|
|
Exhibit
Number |
|
Description |
|
3.1 |
|
Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the SEC on April 22, 2014) |
|
3.2 |
|
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the SEC on April 22, 2014) |
|
10.1 |
|
Advisory Units Agreement, dated as of April 30, 2015, by and among Sumitomo Mitsui Banking Corporation, SMBC Nikko Securities Inc., SMBC Capital Markets, Inc., Moelis & Company Group LP,
Moelis & Company and Moelis & Company Group GP LLC (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 1, 2015) |
|
10.2 |
|
Assignment and Assumption of the Strategic Alliance Agreement, dated as of April 30, 2015, by and among Sumitomo Mitsui Banking Corporation, SMBC Nikko Securities Inc., SMBC Capital Markets, Inc.,
Moelis Asset Management LP, Moelis & Company Group LP, Moelis & Company and Moelis & Company Holdings GP LLC (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on
May 1, 2015) |
|
10.3 |
|
Master Services Agreement, dated as of April 30, 2015, by and between Moelis & Company Group LP, Moelis Asset Management LP and certain subsidiaries of Moelis Asset Management LP
(Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 1, 2015) |
|
10.4 |
|
Statement of Terms and Conditions of the 2015 Restricted Stock Unit Award for NonEmployee Directors (Incorporated by reference to Exhibit 10.6 to the Company's Form 10-K filed on February 27,
2015) |
|
31.1 |
|
Rule 13a-14(a) Certification of Chief Executive Officer of the Registrant in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
Rule 13a-14(a) Certification of Chief Financial Officer of the Registrant in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
* |
Section 1350 Certification of Chief Executive Officer of the Registrant in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
* |
Section 1350 Certification of Chief Financial Officer of the Registrant in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 |
|
101.INS |
|
XBRL Instance Document |
|
101.SCH |
|
XBRL Taxonomy Extension Schema |
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase |
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
- *
- Document
has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Registrant's filings under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934 irrespective of any general incorporation language contained in any such filing.
49
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Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Kenneth Moelis, certify that:
- 1.
- I
have reviewed this Quarterly Report on Form 10-Q for the period ending March 31, 2015 of Moelis & Company as filed with the Securities
and Exchange Commission on the date hereof;
- 2.
- Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4.
- The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e)) and have:
- a.
- designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
- b.
- [paragraph
omitted in accordance with the Exchange Act Rule 13a-14(a)];
- c.
- evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
- d.
- disclosed
in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
- 5.
- The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and to the audit committee of the registrant's board of directors:
- a.
- all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
- b.
- any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
|
|
|
May 8, 2015 |
|
/s/ KENNETH MOELIS
Kenneth Moelis Chief Executive Officer |
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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Joseph Simon, certify that:
- 1.
- I
have reviewed this Quarterly Report on Form 10-Q for the period ending March 31, 2015 of Moelis & Company as filed with the Securities
and Exchange Commission on the date hereof;
- 2.
- Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4.
- The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e)) and have:
- a.
- designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
- b.
- [paragraph
omitted in accordance with the Exchange Act Rule 13a-14(a)];
- c.
- evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
- d.
- disclosed
in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
- 5.
- The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and to the audit committee of the registrant's board of directors:
- a.
- all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
- b.
- any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
|
|
|
May 8, 2015 |
|
/s/ JOSEPH SIMON
Joseph Simon Chief Financial Officer |
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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth
Moelis, Chief Executive Officer of Moelis & Company (the "Company"), certifies with respect to the Quarterly Report of the Company on Form 10-Q for the quarterly period ended
March 31, 2015 (the "Report") that, to the best of his knowledge:
- (1)
- The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- (2)
- The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
May 8, 2015 |
|
/s/ KENNETH MOELIS
Kenneth Moelis Chief Executive Officer |
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Joseph
Simon, Chief Financial Officer of Moelis & Company (the "Company"), certifies with respect to the Quarterly Report of the Company on Form 10-Q for the quarterly period ended
March 31, 2015 (the "Report") that, to the best of his knowledge:
- (1)
- The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- (2)
- The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
May 8, 2015 |
|
/s/ JOSEPH SIMON
Joseph Simon Chief Financial Officer |
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CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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