Moelis & pany(US:MC)2023-04-26 16:00Part I. Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2023, covering financial condition, operations, comprehensive income, cash flows, and equity, along with significant accounting policies Condensed Consolidated Statements of Financial Condition Total assets decreased to $989.0 million from $1.22 billion, and total liabilities decreased to $556.9 million from $757.9 million, primarily due to reduced cash, investments, and compensation payable Condensed Consolidated Statements of Financial Condition (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $134,622 | $206,794 | | Investments | $91,681 | $265,245 | | Total assets | $989,028 | $1,216,869 | | Liabilities and Equity | | | | Compensation payable | $29,230 | $243,176 | | Total liabilities | $556,918 | $757,931 | | Total equity | $432,110 | $458,938 | Condensed Consolidated Statements of Operations Q1 2023 revenues fell 38% to $187.8 million, resulting in an operating loss of $1.4 million and net income of $3.7 million, a significant decline from the prior year's performance Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $187,820 | $302,088 | | Total expenses | $189,211 | $212,661 | | Operating income (loss) | $(1,391) | $89,427 | | Net income (loss) attributable to Moelis & Company | $3,666 | $65,715 | | Diluted EPS | $0.05 | $0.94 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $152.1 million due to compensation payments, while investing activities provided $170.2 million, leading to a $72.2 million net decrease in cash and cash equivalents for Q1 2023 Cash Flow Summary for the Three Months Ended March 31 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(152,143) | $(272,454) | | Net cash provided by (used in) investing activities | $170,217 | $27,360 | | Net cash provided by (used in) financing activities | $(90,557) | $(143,724) | | Net increase (decrease) in cash | $(72,154) | $(389,959) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, including revenue recognition for advisory services and the company's single business segment, also disclosing a $0.60 per share dividend and a new Los Angeles office lease post-quarter end - The company's activities as an investment banking advisory firm constitute a single business segment, offering services in M&A, recapitalizations, restructurings, and other corporate finance matters24 - The vast majority of advisory services revenues are recognized over time, with variable transaction fees constrained until the transaction is substantially complete and revenue reversal is not probable5657 - For Q1 2023, the company recognized $59.6 million in equity-based compensation expense, with $242.5 million in total unrecognized expense as of March 31, 2023, to be recognized over 2.1 years8791 - Subsequent to quarter end, the Board declared a $0.60 per share dividend, and the company entered a new Los Angeles office lease with an associated $15.0 million right-of-use asset and lease liability123124 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 38% Q1 2023 revenue decrease to $187.8 million due to M&A market slowdown, analyzing operating results, liquidity, capital resources, and critical accounting policies, while noting strong client engagement Results of Operations Q1 2023 revenues decreased 38% to $187.8 million, leading to a $1.4 million operating loss, as compensation expenses rose to 79% of revenue despite a 16% decline, and non-compensation expenses increased 14% Operating Results Summary (in thousands) | Item | Q1 2023 | Q1 2022 | Variance | | :--- | :--- | :--- | :--- | | Revenues | $187,820 | $302,088 | -38% | | Compensation and benefits | $148,239 | $176,637 | -16% | | Non-compensation expenses | $40,972 | $36,024 | 14% | | Operating income (loss) | $(1,391) | $89,427 | N/M | - The decrease in revenues was driven by a reduction in both the number of completed transactions and the average fees per completed transaction compared to the prior year period141 - Compensation expenses as a percentage of revenue increased to 79% in Q1 2023 from 58% in Q1 2022, due to declining revenues and greater headcount147 - Non-compensation expenses increased primarily due to higher client travel and communication and technology expenses, driven by greater headcount and more in-person client discussions149 Liquidity and Capital Resources The company maintains strong liquidity with $135.4 million in cash, $65.0 million and $30.0 million credit facilities, no borrowings, a $0.60 per share dividend declared, and $62.5 million remaining in its share repurchase program - As of March 31, 2023, the company had $85.4 million in cash and cash equivalents and $49.2 million in cash156 - The company maintains two credit facilities: a $65.0 million revolving credit facility and a $30.0 million facility for its U.S. Broker Dealer, with no borrowings under either as of March 31, 2023159162 - The Board of Directors declared a regular quarterly dividend of $0.60 per share, payable on June 23, 2023163 - The share repurchase program, authorized in July 2021 for up to $100 million, had a remaining balance of $62.5 million as of March 31, 202316497 Quantitative and Qualitative Disclosures About Market Risk The company faces no significant market risk due to its non-capital-intensive model, though it has unhedged foreign currency exposure and manages credit risk through an allowance for credit losses - The company's business is not capital-intensive, and it does not invest in derivatives or generally borrow through debt, resulting in no significant market risk176 - The company is exposed to foreign exchange rate risk, particularly between the U.S. dollar and the pound sterling, euro, and other currencies, with a net impact of a $0.3 million gain for Q1 2023179 - Credit risk is managed by regularly reviewing accounts receivable and maintaining an allowance for credit losses based on historical experience, credit quality, and economic conditions178 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report195 - No material change in internal control over financial reporting occurred during the quarter196 Part II. Other Information Legal Proceedings The company is involved in ordinary course legal and regulatory proceedings, including an SEC inquiry into recordkeeping and a class action lawsuit challenging its Stockholders Agreement, with potential losses currently inestimable - The company is cooperating with an SEC request for information related to an industry-wide investigation of broker-dealer practices for recordkeeping of business communications on messaging applications198 - A class action lawsuit was filed by a stockholder in the Delaware Court of Chancery seeking a declaratory judgment that certain provisions of the Stockholders Agreement are invalid and unenforceable198 Risk Factors No material changes have occurred to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to the Risk Factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, have occurred200 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales, repurchasing 1,057,278 shares at an average of $42.11 in Q1 2023, with $62.5 million remaining in the share repurchase program Issuer Purchases of Equity Securities in Q1 2023 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31 | — | $— | $62.5 million | | Feb 1 - Feb 28 | 1,026,616 | $42.09 | $62.5 million | | Mar 1 - Mar 31 | 30,662 | $42.85 | $62.5 million | | Total | 1,057,278 | $42.11 | $62.5 million | - In July 2021, the Board authorized the repurchase of up to $100 million of Class A common stock and/or Class A partnership units with no expiration date202 Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None Mine Safety Disclosures This item is not applicable to the company - Not applicable Other Information The company reports no information for this item - None Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, vesting agreements, and CEO/CFO certifications required by Sarbanes-Oxley Act - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002207 - Inline XBRL documents are included as exhibits for interactive data filing207