Moelis & Company — Q1 2022 10-Q Summary
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Moelis is a global investment bank focused on advisory services, including M&A, restructurings, capital markets and other corporate finance matters. It reported one business segment and 682 advisory bankers at quarter-end. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $302.1 million | $263.9 million | +14% |
| Operating expenses | $212.7 million | $191.4 million | +11% |
| Operating income | $89.4 million | $72.4 million | +23% |
| Operating margin | 29.6% | 27.5% | +2.1 percentage points |
| Net income attributable to Moelis | $65.7 million | $66.5 million | -1% |
| Diluted earnings per share | $0.94 | $1.00 | -6% |
| Operating cash flow | $(272.5) million | $(23.0) million | Greater outflow |
- Revenue growth was primarily driven by higher average fees per completed transaction. The company served 145 fee-paying clients, down from 178; clients paying fees of at least $1 million declined to 58 from 68.
- Compensation and benefits rose 13% to $176.6 million, but decreased to 58% of revenue from 59%. Non-compensation expenses rose 3% to $36.0 million, or 12% of revenue versus 13%.
- Other income and expenses shifted to a $2.2 million expense from $3.2 million of income, primarily reflecting $3.9 million in unrealized losses on equity investments measured at fair value. The income tax provision was $13.6 million, compared with a $0.2 million benefit; the effective tax rate was 15.6% versus -0.2%.
Liquidity, cash flow and obligations
- Cash and cash equivalents were $130.4 million at March 31, 2022, down from $520.2 million at December 31, 2021; restricted cash was $0.6 million. Cash, cash equivalents and restricted cash totaled $131.1 million, a $390.0 million quarterly decline.
- Investments totaled $228.3 million, including $171.1 million of U.S. Treasury instruments. The filing reports total assets of $1.097 billion and total liabilities of $652.4 million.
- Operating cash outflow was primarily associated with operating payments, including discretionary bonuses. Investing activities provided $27.4 million, mainly from net investment sales; financing activities used $143.7 million, primarily for treasury stock purchases and dividends and tax distributions.
- The company reported no borrowings under either revolving facility: a $65 million corporate facility, with $64.2 million available after letters of credit, and a $30 million broker-dealer facility. The filing does not report outstanding funded debt. Lease liabilities were $187.4 million; the tax receivable agreement liability was $307.1 million, with an estimated $5.5 million due within one year.
- Q1 dividends and tax distributions totaled $45.6 million, and treasury stock purchases totaled $97.9 million. The company had $109.0 million remaining under its share repurchase authorization. A $0.60 per-share dividend was declared for payment June 8, 2022.
Changes, outlook and risks
- Management said Q1 was the slowest quarter for global M&A announcements in seven quarters, while completed global M&A transactions above $100 million were nearly flat year over year. Despite this, Moelis’s revenue increased 14%.
- Management believed underlying drivers of the recent robust M&A environment remained in place and expected solid activity to persist in the near to intermediate term. It also noted that improved capital availability had sharply slowed new restructuring mandates, while accumulated corporate debt could support longer-term restructuring activity. No specific financial guidance was provided.
- Management identified the war in Ukraine, regulatory changes and inflation as sources of continued uncertainty. Revenue remains transaction- and timing-dependent; deals may be delayed or terminated, and the company may not earn expected completion fees. Results can vary significantly between periods.
- Cash balances generally decline in Q1 as prior-year incentive compensation and partner tax distributions are paid. Most bank account balances exceeded U.S. and U.K. deposit-insurance coverage limits. The company does not hedge its foreign-currency exposure.
- The company said it was not aware of material pending legal proceedings expected to have a material effect, while noting that potential losses in ordinary-course proceedings or investigations may be difficult to estimate. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether M&A activity and transaction closings sustain fee revenue after a quarter marked by slower announcements and fewer fee-paying clients.
- How seasonal compensation payments, collections and capital returns affect cash balances and operating cash flow in subsequent quarters.
- The composition, valuation and performance of the investment portfolio, including the effect of fair-value losses.
- Timing and assumptions for the $307.1 million tax receivable agreement liability, deferred tax assets of $422.6 million, and long-term lease commitments.
- Subsequent updates to management’s outlook and the effects of geopolitical, inflationary, regulatory and foreign-exchange risks.