Moelis & Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. Moelis is a global investment bank focused on advisory services, including M&A, restructuring, capital markets and other corporate finance matters. It reported 843 advisory bankers at quarter-end.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $217.5 million | $187.8 million |
| Operating expenses | $211.7 million | $189.2 million |
| Operating income (loss) | $5.8 million | ($1.4) million |
| Net income attributable to Moelis & Company | $16.6 million; $0.24 basic and $0.22 diluted per share | $3.7 million; $0.05 basic and diluted per share |
| Net cash used in operating activities | ($165.0) million | ($152.1) million |
- Revenue increased 16%; operating expenses increased 12%. Operating margin was approximately 2.7%, compared with negative 0.7% a year earlier. Compensation and benefits were 76% of revenue versus 79%.
- Cash, cash equivalents and restricted cash totaled $103.3 million at March 31, down from $187.2 million at December 31, 2023. Cash and cash equivalents were $102.6 million; investments were $67.7 million, down from $210.4 million at year-end, principally reflecting investment sales.
- Operating cash outflow reflected, among other items, discretionary incentive compensation payments. Investing activities provided $129.4 million, primarily from investment sale proceeds; financing activities used $47.7 million, principally for dividends, tax distributions and treasury stock purchases.
- No borrowings were outstanding under either revolving facility. Available credit was $64.4 million under the $65 million corporate facility and $30 million under the broker-dealer facility. The corporate facility had a June 28, 2024 maturity, with automatic extension provisions; the filing describes the broker-dealer facility’s credit period ending May 24, 2024 and maturity on May 24, 2025.
- Total liabilities were $619.7 million, including $310.1 million due under the tax receivable agreement and $211.8 million in lease liabilities. No funded debt was reported. The U.S. broker-dealer had $30.3 million of net capital, $30.1 million above its minimum.
Changes versus the prior period
- Revenue growth was driven primarily by more transaction completions. Moelis earned fees from 154 clients versus 127, and 57 clients paid fees of at least $1 million versus 40.
- Revenue rose despite a reported 20% decline in global completed M&A transactions over $100 million. By office location, U.S. revenue decreased to $155.7 million from $158.1 million, while Europe rose to $32.3 million from $16.6 million and the rest of the world to $29.5 million from $13.2 million.
- Other income increased to $4.2 million from $1.7 million. Q1 2024 included $3.3 million from cash-equivalent investments and sovereign debt securities and $1.1 million from enforcement of non-compete provisions. The prior period included investment mark-to-market losses.
- The income tax provision was a benefit of $7.5 million, compared with a $3.2 million benefit in Q1 2023. The filing attributes the benefits in part to excess tax benefits associated with equity compensation; the 2024 benefit materially increased reported net income.
Outlook, risks and notable items
- Management provided no numerical revenue or earnings guidance. It cited strong client dialogue, accumulated financial-sponsor capital and unsold portfolio companies as potential supports for future sponsor-related M&A. It also noted increased restructuring and liability-management mandates amid higher borrowing costs and limited refinancing access.
- Management said subdued debt and equity issuance could improve if macroeconomic conditions and investor sentiment improve. It also identified high interest rates, inflation, overseas military conflicts and regulatory burdens as sources of uncertainty, while describing the firm’s client coverage and balanced business model as positioning it well.
- Results are transaction-timing dependent and can vary significantly by quarter. Deals may be delayed or terminated, preventing transaction-fee recognition or collection despite work already performed.
- Cash balances at many banks exceed FDIC or U.K. deposit-insurance limits. The company reported no currency hedging; foreign-currency translation reduced other comprehensive income by $0.8 million in Q1 2024.
- A Delaware Court of Chancery interlocutory order dated March 4, 2024 found certain provisions of the company’s Stockholders Agreement, including approval-right and director-vacancy provisions, facially invalid. No final order had been entered, and the appeal period had not expired. Management said it was not aware of other material pending proceedings expected to have a significant adverse effect.
- The board declared a $0.60-per-share dividend payable June 20, 2024 to shareholders of record May 6, 2024. The company reported disclosure controls as effective and no material changes to internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the revenue increase and client activity translate into sustained transaction completions and fee collections.
- The effect of incentive compensation, headcount and equity-based compensation on future expense ratios and cash flows.
- The sustainability of reported earnings given the sizable tax benefit and the components of other income.
- Cash and investment levels after seasonal bonus and tax-distribution outflows, and the status of the corporate revolving facility’s extension.
- The final outcome and any appeal in the stockholder litigation, as well as future obligations under the $310.1 million tax receivable agreement.