Moelis & Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited results; amounts below are in U.S. dollars. Moelis is a global investment bank focused on advisory services, including M&A, restructurings, recapitalizations and other corporate finance matters.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $263.9 million | $153.7 million; up 72% |
| Operating income / margin | $72.4 million / 27.5% | $24.4 million / 15.9% |
| Net income attributable to Moelis & Company | $66.5 million; diluted EPS $1.00 | $25.1 million; diluted EPS $0.44 |
| Compensation and benefits | $156.5 million; 59% of revenue | $95.1 million; 62% of revenue |
| Non-compensation expenses | $34.9 million; 13% of revenue | $34.1 million; 22% of revenue |
| Operating cash flow | $(23.0) million | $(73.1) million |
| Cash, cash equivalents and restricted cash | $156.5 million at quarter-end | $203.3 million at December 31, 2020 |
Total assets were $1.071 billion and total liabilities were $610.5 million at March 31, 2021. The balance sheet included $193.9 million of lease liabilities and $324.1 million due under the tax receivable agreement. The company reported no revolver borrowings; $60.5 million remained available under its $65 million facility, after letters of credit. It generally does not borrow through debt issuance.
Investing activities provided $90.9 million, primarily from net investment sales; financing activities used $113.9 million, mainly for share repurchases, dividends and tax distributions. The company paid a regular dividend of $0.55 per share during the quarter and repurchased 1.36 million shares for $74.2 million. Accounts receivable, net of allowance, was $71.8 million; the allowance rose to $6.2 million from $3.8 million at year-end.
Changes and management commentary
- Revenue growth primarily reflected more transaction completions. Fee-paying clients increased to 178 from 117, and clients paying fees of at least $1 million increased to 68 from 39.
- Operating expenses rose 48%, slower than revenue growth of 72%; compensation increased 65%, mainly due to higher discretionary bonus expense. Lower travel and business-development costs partly offset transaction-related expense increases.
- Management described M&A announcements as very robust and expected a positive M&A environment in the near to intermediate term. Restructuring activity remained steady, while capital markets activity and SPAC expertise were identified as areas of opportunity. These are management views, not quantified guidance.
- Management said COVID-19 continued to create uncertainty, while the firm remained positioned to serve clients and operate through its work-from-home arrangements. It also noted that elevated corporate debt issuance could support restructuring activity over the longer term.
Outlook, risks and unusual items
- No numeric earnings or revenue guidance was provided. Management cautioned that advisory revenues depend on transaction milestones and completions, which are outside the firm’s control; quarterly results may vary substantially and are not necessarily indicative of future periods.
- The company recorded a $0.2 million income tax benefit, including $17.5 million of excess tax benefits related to equity compensation. In February 2021, partnership-unit exchanges increased deferred tax assets; $16.5 million of the related tax benefit is payable to eligible partners under the tax receivable agreement.
- Subsequent to quarter-end, the board declared a $2.00-per-share special dividend in addition to the $0.55 regular quarterly dividend, for a total of $2.55 per share payable June 18, 2021.
- Operating cash flow remained negative, and cash declined during the quarter, which management attributed in part to annual incentive compensation and partner tax distributions. Most bank-account balances exceeded applicable U.S. and U.K. deposit-insurance limits.
- Advisory fees can be delayed or lost if transactions fail to close or restructuring efforts do not succeed. The filing reported no material change to previously disclosed risk factors. The company said it was not aware of material pending legal proceedings likely to have a material effect, while noting that potential losses in proceedings and investigations may not be estimable.
- The CEO is a founding member and managing member of Atlas Crest Sponsors, and the company invested in those sponsors; the filing also reports related services provided to affiliated SPACs. These related-party relationships may warrant review.
Important facts for investors to verify
- Whether the exceptional revenue growth reflects completed transactions that are repeatable, and how the announced-deal pipeline converts into collected fees.
- The drivers of the higher credit-loss allowance and whether receivable collections and operating cash flow improve.
- The expected cash timing and assumptions behind the $324.1 million tax receivable agreement liability and deferred tax asset.
- The funding implications of the special dividend and continued repurchases, alongside lease obligations and the credit facility’s then-stated June 30, 2021 maturity.
- The scale, terms and governance of investments and service arrangements involving Atlas Crest affiliates and other related parties.