Moelis & Company — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed February 22, 2024. Moelis is a global independent investment bank focused primarily on M&A, restructuring, capital markets, and other advisory services. This summary covers the full fiscal year, not Q4 alone.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $854.7 million | $985.3 million |
| Operating expenses | $895.1 million | $769.2 million |
| Operating income (loss) | ($40.4 million) | $216.1 million |
| Net income (loss) | ($27.5 million) | $168.7 million |
| Net income (loss) attributable to Moelis & Company | ($24.7 million) | $150.3 million |
| Basic and diluted EPS | ($0.36) | $2.29 basic; $2.14 diluted |
| Cash provided by operating activities | $158.5 million | $33.0 million |
- Revenue fell 13%, which management attributed to fewer completed transactions. Global completed M&A transactions above $100 million declined 32%, according to the filing’s cited data.
- Compensation and benefits rose 16% to $714.7 million, or 84% of revenue versus 63% in 2022. Management cited increased Managing Director headcount, hiring guarantees, and lower revenue.
- Non-compensation expenses increased 19% to $180.4 million, or 21% of revenue versus 15%, with higher professional, technology, travel, and deal-related costs.
- Operating margin was approximately negative 4.7%, versus positive 21.9% in 2022; net margin was approximately negative 3.2%, versus positive 17.1%.
- Other income and expenses were net income of $11.2 million, including $11.3 million from cash-equivalent and sovereign-debt investments, $5.3 million of gains on equity securities sold, $3.4 million of MA Financial earnings, and a $10.0 million SEC penalty.
Cash, liquidity, and obligations
- Year-end cash, cash equivalents, and restricted cash totaled $187.2 million, down from $207.5 million. Operating cash flow was $158.5 million; financing cash outflow was $229.2 million, mainly reflecting dividends, tax distributions, and treasury-stock purchases.
- Cash and cash equivalents on the balance sheet were $186.4 million; investments were $210.4 million, including $162.9 million in sovereign debt securities. Accounts receivable, net, was $51.2 million.
- No borrowings were outstanding under either revolving facility at year-end. The company had $64.4 million available on its $65 million corporate facility and $30 million available on its broker-dealer facility.
- The company reported $304.6 million due under its tax receivable agreement, including an estimated $21.4 million due within one year. Lease liabilities were $215.7 million. The filing does not report conventional funded debt outstanding.
- Moelis paid $2.40 per share in dividends during 2023 and declared a $0.60-per-share dividend in February 2024, payable March 28, 2024. The board retains discretion over future dividends.
Material changes and management outlook
- Compared with 2022, revenue declined, expenses increased, and the company moved from profit to operating and net losses. Fee-paying clients declined from 314 to 304; clients paying at least $1 million in fees declined from 187 to 175.
- Management said restructuring and out-of-court liability-management mandates increased as borrowing costs rose and refinancing access tightened. It cited debt maturity needs over the next several years as a potential source of future advisory work.
- Management noted continued client dialogue and said sponsor-held portfolio companies and limited exits could support sponsor-related M&A over time. It also said improving macroeconomic conditions and investor sentiment could improve capital-raising conditions.
- No quantified earnings or revenue guidance was provided. Management emphasized uncertainty from high interest rates, inflation, geopolitical conflict, and regulatory burdens, while describing the firm as well positioned through focused client coverage and a balanced advisory platform.
- The firm added 24 Managing Directors in 2023. Management identified recruiting, integrating, and retaining talent as important to growth and profitability.
Risks, contingencies, and unusual items
- Revenue depends on advisory mandates and transaction milestones; transaction timing, completion, and fee collection are uncertain. Quarterly results can therefore be volatile, and fixed costs may not adjust quickly to revenue declines.
- On August 8, 2023, Moelis agreed to a $10.0 million SEC penalty and other undertakings, including retaining a compliance consultant, to resolve a proceeding concerning recordkeeping of business communications on messaging applications.
- A putative shareholder class action filed in Delaware in March 2023 challenges certain provisions of the stockholders agreement with Partner Holdings. The company sought declaratory relief; the filing does not state a clear potential loss estimate. Management said it was not aware of other material pending proceedings expected to have a significant adverse effect.
- The company recognized impairment charges related to a vacated San Francisco office lease: $1.149 million on right-of-use assets and $0.558 million on leasehold improvements.
- Foreign exchange exposure is not hedged; international operations generated approximately 21% of 2023 revenue. Most bank-account balances exceeded FDIC or UK FSCS insurance limits.
- Kenneth Moelis held approximately 40% of voting power at year-end through Partner Holdings, creating potential governance and control conflicts. The company also disclosed a $437.2 million net deferred tax asset and the possibility that tax-receivable-agreement payments could differ from realized tax savings, particularly under certain change-of-control or termination scenarios.
- Management and Deloitte reported effective internal control over financial reporting as of year-end; Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether transaction activity and revenue recover enough to absorb the expanded compensation and operating cost base.
- How much of the $304.6 million tax-receivable-agreement liability is ultimately payable, when payments fall due, and how cash tax savings compare with those payments.
- Developments in the SEC compliance undertakings and the Delaware shareholder litigation, including any new costs or disclosures.
- Cash generation and liquidity after incentive compensation, partner tax distributions, dividends, and lease commitments.
- Whether dividend payments remain supported by cash flow and board-approved capital priorities.