Moelis & Company — 2020 Form 10-K Summary
Business context and reporting period
This is an annual report for the fiscal year ended December 31, 2020, not a standalone fourth-quarter filing. The filing text does not provide a clear standalone Q4 income statement or cash-flow value. Moelis is a global independent investment bank focused primarily on financial advice, including M&A, restructuring, capital markets and private-funds advisory. It reported 627 advisory professionals and 125 Managing Directors at year-end.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $943.3 million | $746.5 million |
| Operating income | $265.7 million | $114.5 million |
| Operating margin | 28.2% | 15.3% |
| Net income | $218.4 million | $135.7 million |
| Net income attributable to Moelis & Company | $178.8 million | $105.1 million |
| Diluted EPS | $2.95 | $1.89 |
| Cash provided by operating activities | $429.2 million | $209.3 million |
Revenue rose 26%, while operating expenses increased 7% to $677.6 million. Compensation and benefits were $560.8 million, or 59% of revenue, compared with 65% in 2019. Non-compensation expenses declined 19% to $116.8 million, primarily reflecting lower travel and business-development costs during COVID-19 restrictions. The effective tax rate increased to 19.1% from 8.0%.
Year-end cash and cash equivalents were $202.5 million, plus $0.8 million of restricted cash; investments totaled $211.8 million, including $172.7 million in U.S. Treasury instruments and a $38.1 million equity-method investment in Moelis Australia. The company had no revolver borrowings; $60.5 million of its $65 million facility was available after letters of credit. Lease liabilities were $196.6 million. The $307.6 million tax receivable agreement liability is a significant obligation, although management expects related tax savings generally to precede payments.
Material changes versus the prior year
- Revenue increased despite a 13% decline in global completed M&A transactions valued above $100 million, according to the market data cited in the filing. Management attributed growth chiefly to more completed transactions and higher average fees; fee-paying clients rose from 265 to 316.
- Operating income more than doubled, with expense growth below revenue growth. Lower travel-related costs helped offset higher compensation expense.
- Other income fell to $4.4 million from $33.0 million. 2019 included gains of $20.7 million from sales of Moelis Australia shares; 2020 income included, among other items, Moelis Australia earnings and tax receivable agreement adjustments.
- Operating cash flow increased to $429.2 million, and cash, cash equivalents and restricted cash ended the year at $203.3 million, up from $168.6 million.
Outlook, management commentary and risks
Management said Q4 2020 had the strongest quarter of announced global M&A transactions on record and described activity continuing into 2021 as elevated. It anticipated a positive near- to intermediate-term M&A environment, while noting ongoing restructuring demand in parts of the economy affected by COVID-19. Management offered no quantified revenue or earnings guidance in the provided filing text.
Key risks include the pandemic’s uncertain effects on clients and markets; volatile, transaction-dependent fee revenue and timing; competition and the ability to retain senior bankers; potential conflicts, litigation and regulatory exposure; cybersecurity and remote-work risks; and unhedged foreign-currency exposure. The filing says top 10 transactions were less than 25% of 2020 revenue and no single client exceeded 10%. About 16% of revenue came from international operations.
Revenue recognition for certain transaction fees requires significant judgment, including when conditions are met before a transaction formally closes; this was identified as a critical audit matter. The company reported no material pending proceeding expected to materially affect it, based on current knowledge, but said outcomes and potential losses in legal or regulatory matters may be difficult to estimate. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Review the full audited statements and notes, especially the $307.6 million tax receivable agreement liability, deferred tax assets and lease obligations.
- Assess sustainability of unusually strong 2020 fee revenue and cash flow, given milestone-based fees, transaction timing, and the absence of long-term contracted revenue.
- Track compensation costs, equity awards and share dilution; 2020 equity-based compensation expense was $133.6 million.
- Confirm dividend and capital-return capacity: 2020 dividends were $4.1525 per share, including $2.75 in special dividends; a $0.55 quarterly dividend was declared for payment in March 2021.
- Consider governance and related-party disclosures: Kenneth Moelis held about 51% of voting power at year-end, and the company expected to cease being a NYSE controlled company on February 23, 2021.