Moelis & Company — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; comparisons are with the corresponding 2020 periods unless stated otherwise. Moelis is a global investment bank focused on advisory services, including M&A, restructurings and other corporate finance matters.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $360.9 million | $159.9 million | $624.8 million | $313.6 million |
| Operating income (loss) | $118.2 million | ($17.2 million) | $190.7 million | $7.3 million |
| Net income (loss), consolidated | $93.2 million | ($9.0 million) | $169.0 million | $21.1 million |
| Net income attributable to Moelis & Company | $79.3 million | ($5.7 million) | $145.9 million | $19.4 million |
| Diluted EPS | $1.17 | ($0.10) | $2.17 | $0.33 |
| Operating margin | 32.8% | (10.7%) | 30.5% | 2.3% |
Q2 revenue rose 126%; first-half revenue rose 99%. Management attributed the increase primarily to more transaction completions. Fee-paying clients increased to 178 from 127 in Q2 and to 257 from 187 in the first half. Clients paying at least $1 million in fees increased to 69 from 32 in Q2 and 145 from 74 in the first half.
- Expenses and margins: Q2 compensation and benefits were $214.0 million, or 59% of revenue, versus $149.6 million, or 94%. First-half compensation was $370.5 million, or 59% of revenue, versus $244.7 million, or 78%. Total operating expenses were $242.7 million in Q2 and $434.1 million for the first half. Higher compensation, including discretionary bonuses, was the principal expense increase; non-compensation expense rose modestly.
- Other income and taxes: Other income was $2.8 million in Q2 and $5.9 million for the first half, compared with expenses in 2020. The change reflected prior-year Tax Receivable Agreement adjustments and, in 2021, gains and earnings related to MA Financial. The six-month tax provision was $27.6 million; reported results also reflected excess tax benefits from equity awards.
- Cash flow: First-half operating cash flow was $231.9 million, investing cash flow was $75.0 million and financing cash outflow was $314.3 million. Cash, cash equivalents and restricted cash declined $5.8 million to $197.5 million. Financing outflows primarily reflected dividends, tax distributions and treasury-stock purchases.
- Liquidity and obligations: At June 30, cash and cash equivalents were $196.5 million; investments were $130.4 million. The company reported no borrowings under either its $65 million revolving facility or its additional $30 million regulatory-capital facility. The facilities had $64.1 million and $30.0 million available, respectively. Lease liabilities were $192.3 million, and the Tax Receivable Agreement liability was $324.6 million.
- Capital and distributions: The company paid aggregate dividends of $3.10 per share in the first half and repurchased 1.77 million shares during that period. The board declared a $0.60-per-share dividend payable in September 2021 and authorized an additional $100 million share repurchase program in July.
Changes, outlook and risks
- The rebound in advisory activity drove a substantial year-over-year improvement, including a return to profitability in Q2 after a loss in Q2 2020. First-half operating margin increased to 30.5% from 2.3%.
- Management described global M&A activity as exceptionally strong, with record first-half announcements, and said elevated M&A activity and its capital-markets business position the firm for continued near- to intermediate-term activity. This is commentary, not quantified earnings guidance.
- Restructuring mandates remained steady, but new mandates slowed markedly from the prior year as economic conditions, capital availability and financing solutions improved. Management noted that high corporate debt issuance could support longer-term restructuring activity.
- Revenue is transaction-dependent and may fluctuate significantly: fees often depend on closing, which can be delayed or prevented by approvals, financing, market conditions or other factors. Management cautioned that period results may not indicate full-year or future performance.
- Other considerations include foreign-currency exposure without hedging, bank balances largely above deposit-insurance limits, and potential regulatory or legal proceedings. The company said it was not aware of material pending proceedings expected to have a material effect; it could not estimate losses for matters that may arise or remain at an early stage. Management reported no material change to the risk factors in its 2020 Form 10-K.
- The Tax Receivable Agreement generally entitles eligible Managing Directors to 85% of qualifying realized tax savings. The filing states that change-of-control or early-termination payments could exceed actual tax savings in some circumstances.
Important facts for investors to verify
- Whether exceptional M&A activity and transaction completions persist, and how advisory fee timing affects quarterly revenue.
- How compensation, including discretionary bonuses and equity awards, responds if revenue normalizes; first-half equity-based compensation expense was $80.0 million.
- The collectability of receivables, including $30.3 million of long-term private-funds advisory receivables, and the assumptions behind the $4.4 million credit-loss allowance.
- The timing and potential cash impact of the $324.6 million Tax Receivable Agreement liability, deferred tax asset realization, and lease commitments.
- The scale and terms of ongoing dividends and repurchases, including the additional $100 million authorization, relative to cash generation and future business conditions.