Moelis & Company — Q2 2022 Form 10-Q Summary
Business context and reporting period
Moelis is a global independent investment bank providing M&A, restructuring, capital markets and other corporate finance advice. This unaudited 10-Q covers the quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods. The company reported one business segment and had 684 advisory bankers at quarter-end.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $242.5M | $360.9M | $544.6M | $624.8M |
| Operating income | $62.2M | $118.2M | $151.6M | $190.7M |
| Net income | $43.9M | $93.2M | $117.5M | $169.0M |
| Net income attributable to Moelis & Company | $39.0M | $79.3M | $104.7M | $145.9M |
| Diluted EPS | $0.56 | $1.17 | $1.49 | $2.17 |
Q2 operating margin was approximately 25.6%, versus 32.8% a year earlier; first-half operating margin was 27.8%, versus 30.5%. Compensation and benefits were 58% of revenue in both comparative periods (Q2 and first half). Non-compensation expenses rose 40% in Q2 and 20% for the first half, with travel and related costs increasing as pandemic-related travel restrictions eased.
For the six months, operating cash flow was negative $214.9M, compared with positive $231.9M in 2021. Investing cash flow was positive $60.1M and financing cash flow negative $221.1M. Cash, cash equivalents and restricted cash fell to $139.4M from $521.0M at December 31, 2021. The filing attributes the operating outflow primarily to cash operating outflows, including discretionary bonuses, net of client collections; financing outflows principally reflected share repurchases, dividends and tax distributions.
At June 30, cash and cash equivalents were $138.8M; investments were $191.9M, including $137.8M of U.S. Treasury instruments. The company had no borrowings under its revolving facilities: $64.2M was available under the $65M corporate facility and $30M under the broker-dealer facility. It reported $671.3M of total liabilities, including $196.4M of lease liabilities and $307.1M due under the tax receivable agreement. The filing does not report outstanding funded debt.
Material changes versus the prior comparable period
- Q2 revenue decreased 33%; first-half revenue decreased 13%. Management attributed the decline primarily to fewer completed transactions. The first half’s revenue decrease compared with a 7% reduction in global completed M&A transactions over $100M.
- Q2 revenue-generating clients declined to 136 from 178, and clients paying at least $1M in fees declined to 44 from 69. For the first half, the respective counts were 211 versus 257 and 103 versus 145.
- Operating expenses declined, but more slowly than revenue: 26% in Q2 and 9% in the first half. Total operating expenses increased as a share of revenue to 74% from 67% in Q2 and 72% from 69% for the first half.
- Other income and expenses shifted to losses of $3.0M for Q2 and $5.3M for the first half, mainly due to unrealized losses on equity investments, versus income in the comparable 2021 periods.
- Cash and cash equivalents declined substantially from year-end, while the first-half operating cash flow moved from positive to negative. Treasury stock purchases totaled $132.8M in first-half cash outflows; 2.84M shares were repurchased during the period.
Outlook, management commentary, risks and unusual items
Management provided no specific financial guidance. It said Q2 was the second-slowest quarter for global M&A announcements in the prior two years, but believes underlying drivers of the 2020–2021 M&A environment may support solid intermediate- and longer-term activity. Restructuring mandates remained slow amid healthy corporate balance sheets and favorable financing conditions; management noted accumulated corporate debt, rising rates and inflation could create longer-term opportunities. Capital markets activity continued to contribute steadily.
Management cited the war in Ukraine, regulatory changes, rising interest rates and inflation as sources of uncertainty. Revenue is transaction-dependent and can fluctuate substantially; fees may be delayed or not earned if transactions fail to close. The company also identified foreign exchange exposure and noted it does not hedge currency fluctuations. Most bank balances exceeded deposit-insurance coverage limits.
Notable items include $9.0M of first-half unrealized losses on equity instruments measured at fair value, a $0.60-per-share dividend declared for payment in August 2022, and a $307.1M tax receivable agreement liability. The company said it was not party to material pending legal proceedings expected to materially affect it. It reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether transaction completions and fee activity recover, given the sharp year-over-year revenue and client declines and the company’s dependence on closing milestones.
- Whether the reduced cash balance and negative first-half operating cash flow reflect normal bonus and seasonal payment timing or persist; monitor client collections and compensation payments.
- How travel and other non-compensation costs evolve, and whether expense reductions can keep pace with revenue changes.
- Performance and liquidity of investments, including the impact of fair-value losses, and the size and timing of cash payments under the tax receivable agreement.
- Dividend and repurchase capacity alongside available credit facilities, lease obligations and regulatory capital needs; the filing reports no funded facility borrowings at quarter-end.