Moelis & Company Reports Third Quarter 2018 Financial Results; Quarterly Dividend of $0.47 Per Share

Business Wire 22-Oct-2018 4:17 PM

Record Third Quarter and First Nine Month Revenues

• Third quarter revenues of $207.7 million, up 22% from the third quarter of 2017; first nine month revenues of $647.5 million, up 26% from the same period of 2017
• GAAP net income of $0.61 per share (diluted) for the third quarter and $2.06 per share (diluted) for the first nine months of 2018; Adjusted net income of $0.62 per share (diluted) and $2.23 per share (diluted) for the third quarter and first nine months of 2018, respectively
• Continued to execute on organic growth strategy
  • Hired a veteran Managing Director in the U.S. to expand consumer expertise with coverage of food and agribusiness clients
  • Appointed a Senior Advisor to enhance the Firm's commitment to diversity and inclusiveness
  • Added ten Managing Directors year to date through internal promotion and key external hires
• Strong balance sheet with cash and short term investments of $231.6 million and no debt or goodwill

Moelis & Company (NYSE:MC) today reported financial results for the third quarter ended September 30, 2018. The Firm's revenues of $207.7 million increased 22% over the prior year period. The Firm reported third quarter 2018 GAAP net income of $44.9 million, or $0.61 per share (diluted), compared with $43.3 million, or $0.48 per share (diluted), in the prior year period. On an Adjusted basis, the Firm reported net income of $42.3 million, or $0.62 per share (diluted), for the third quarter of 2018, which compares with $36.3 million of net income, or $0.57 per share (diluted), in the prior year period.

Total record revenues of $647.5 million for the first nine months of 2018 represented an increase of 26% over the prior year period. GAAP net income for the period was $152.0 million, or $2.06 per share (diluted), as compared with $132.2 million, or $1.51 per share (diluted), in the prior year period. On an Adjusted basis, the Firm reported net income of $150.3 million, or $2.23 per share (diluted), for the first nine months of 2018, as compared with $111.4 million, or $1.76 per share (diluted), in the prior year period. GAAP and Adjusted net income for the first nine months of 2018 include tax benefits of $0.26 per share and $0.30 per share, respectively, related to the settlement of share based awards.

"We achieved our third consecutive quarter of year-over-year record revenue growth as a result of years of investment in growing and strengthening our global network to deliver outstanding results to our clients. Our first nine month revenues are up 26% over the same period last year as a result of executing on our organic growth strategy. Compared with the prior year, this quarter we advised more clients across regions, sectors and products, demonstrating the depth and breadth of our business. As we approach year-end, I am encouraged by our activity levels, dialogue with clients, and our ability to be a strategic partner to companies around the world," said Ken Moelis, Chairman and Chief Executive Officer.

The Firm's revenues and net income can fluctuate materially depending on the number, size and timing of completed transactions on which it advised as well as other factors. Accordingly, financial results in any particular quarter may not be representative of future results over a longer period of time.

Currently 78% of the operating partnership (Moelis & Company Group LP) is owned by the corporate partner (Moelis & Company) and is subject to corporate U.S. federal and state income tax. The remaining 22% is owned by other partners of Moelis & Company Group LP and is primarily subject to tax at the partner level (except for certain state and local and foreign income taxes). The Adjusted results included herein remove the impact of compensation expenses specifically related to the Firm's IPO awards, and apply the corporate tax rate to all earnings under the assumption that 100% of the Firm's third quarter 2018 income was taxed at our corporate effective tax rate. We believe the Adjusted results, when presented together with comparable GAAP results, are useful to investors to compare our performance across periods and to better understand our operating results. A reconciliation between our GAAP results and our Adjusted results is presented in the Appendix to this press release.

GAAP and Adjusted (non-GAAP) Selected Financial Data (Unaudited)

Revenues

We earned revenues of $207.7 million in the third quarter of 2018, as compared with $170.0 million in the prior year period, representing an increase of 22% and our largest third quarter of revenues on record. This compares favorably with a 16% decrease in the number of global completed M&A transactions in the same period¹. The increase in revenues was driven by significant growth in our M&A activity and an increase in our restructuring activity over the prior year period, including higher average fees earned per completed transaction. For the first nine months of 2018, revenues were $647.5 million as compared with $515.4 million in the same period of 2017, or an increase of 26%.

We continued to execute on our strategy of organic growth. In the first nine months of 2018 we promoted five of our advisory professionals to Managing Director and hired five external Managing Directors to enhance our expertise in important sectors, products and regions. This includes one veteran Managing Director in the U.S. that we announced since our last earnings release who will provide financial and strategic advice to food and agribusiness clients. In addition, we announced the hiring of a Senior Advisor who will advise the Firm on key talent initiatives and focus on diversity and inclusion.

Expenses

The following tables set forth information relating to the Firm's operating expenses. Expenses for 2017 only are reported net of client expense reimbursements.

Total operating expenses on a GAAP basis were $154.8 million in the third quarter and $483.9 million for the first nine months of 2018. On an Adjusted basis, operating expenses were $153.6 million in the third quarter of 2018 as compared with $129.1 million in the third quarter of 2017, and $480.3 million for the first nine months of 2018 as compared with $386.6 million in the prior year period. The increase in operating expenses in both periods was associated with increased revenues, which drove increased compensation and benefits expenses, as well as higher non-compensation expenses.

Compensation and benefits expenses on a GAAP basis were $120.7 million in the third quarter and $376.0 million in the first nine months of 2018. Adjusted compensation and benefits expenses (which exclude the amortization of IPO awards for the reported periods) were $119.4 million and $372.3 million in the third quarter and first nine months of 2018, respectively. This compares with $98.6 million and $299.0 million in the third quarter and first nine months of 2017, respectively. The Adjusted compensation and benefits ratio in both the current period and first nine months of 2018 was consistent at 57.5%.

Non-compensation expenses on a GAAP and Adjusted basis were $34.1 million in the third quarter of 2018 as compared with $30.5 million in the prior year period. Our non-compensation expense ratio decreased to 16.4% in the current quarter from 17.9% in the prior year period. For the first nine months of 2018, GAAP and Adjusted non-compensation expenses were $107.9 million as compared with $87.6 million in the same period of the prior year, and the non-compensation expense ratio decreased to 16.7% from 17.0%. The decrease in our non- compensation expense ratio in both current year periods primarily resulted from increased revenues, partially offset by the absence of contra expenses related to client reimbursements in 2018.

Other Income

Other income on a GAAP basis was $1.1 million in the third quarter and $3.0 million for the first nine months of 2018. On an Adjusted basis, other income was $1.0 million in the third quarter as compared with $15.0 million in the prior year period. In the third quarter of 2017, we recorded a gain of $14.4 million related to our investment in Moelis Australia resulting from its issuance of new shares in September 2017. For the first nine months of 2018, other income on an Adjusted basis was $2.2 million as compared with $32.9 million for the first nine months of 2017. The prior year first nine month period primarily includes gains recognized in connection with Moelis Australia's IPO in April 2017 plus the third quarter 2017 gain mentioned above. No such gains were recorded in both current year periods.

Provision for Income Taxes

The corporate partner (Moelis & Company) currently owns 78% of the operating partnership (Moelis & Company Group LP) and is subject to corporate U.S. federal and state income tax. Income on the remaining 22% continues to be subject to New York City unincorporated business tax and certain foreign income taxes and is accounted for at the partner level through the non-controlling interests line item. For Adjusted purposes, we have assumed that 100% of the Firm's third quarter 2018 income was taxed at our corporate effective tax rate of 24.1%, versus 38.2% in the prior year period. The decrease in the tax rate is primarily attributable to the enactment of the Tax Cuts and Jobs Act in 2017, which reduced the U.S. federal corporate income tax rate from 35% to 21% beginning January 1, 2018.

Capital Management and Balance Sheet

On October 19, 2018, the Board of Directors of Moelis & Company declared a quarterly dividend of $0.47 per share. The $0.47 per share will be paid on November 14, 2018 to common stockholders of record on November 1, 2018.

Moelis & Company continues to maintain a strong financial position, and as of September 30, 2018, we held cash and liquid investments of $231.6 million and had no debt or goodwill on our balance sheet.

Earnings Call

We will host a conference call beginning at 5:00pm ET on Monday, October 22, 2018, accessible via telephone and the internet. Navid Mahmoodzadegan, Co-Founder and Co-President, and Joe Simon, Chief Financial Officer, will review our third quarter 2018 financial results. Following the review, there will be a question and answer session.

Investors and analysts may participate in the live conference call by dialing 1-877-510-3938 (domestic) or 1-412-902-4137 (international) and referencing the Moelis & Company Third Quarter 2018 Earnings Call. Please dial in 15 minutes before the conference call begins. The conference call will also be accessible as a listen-only audio webcast through the Investor Relations section of the Moelis & Company website at www.moelis.com.

For those unable to listen to the live broadcast, a replay of the call will be available for one month via telephone starting approximately one hour after the live call ends. The replay can be accessed at 1-877-344-7529 (domestic) or 1-412-317-0088 (international); the conference number is 10124499.

About Moelis & Company

Moelis & Company is a leading global independent investment bank that provides innovative strategic advice and solutions to a diverse client base, including corporations, governments and financial sponsors. The Firm assists its clients in achieving their strategic goals by offering comprehensive integrated financial advisory services across all major industry sectors. Moelis & Company's experienced professionals advise clients on their most critical decisions, including mergers and acquisitions, recapitalizations and restructurings, capital markets transactions, and other corporate finance matters. The Firm serves its clients from 19 geographic locations in North and South America, Europe, the Middle East, Asia and Australia. For further information, please visit: www.moelis.com or follow us on Twitter @Moelis.

Forward-Looking Statements

This press release contains forward-looking statements, which reflect the Firm's current views with respect to, among other things, its operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "target," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. For a further discussion of such factors, you should read the Firm's filings with the Securities and Exchange Commission. The Firm undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Non-GAAP Financial Measures

Adjusted results are a non-GAAP measure which better reflect management's view of operating results. We believe that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable GAAP measures, are useful to investors to understand the Firm's operating results by removing the significant accounting impact of one-time charges associated with the Firm's IPO and assuming all Class A partnership units have been exchanged into Class A common stock. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of GAAP results to Adjusted results is presented in the Appendix.

Appendix

GAAP Consolidated Statement of Operations (Unaudited)

Reconciliation of GAAP to Adjusted (non-GAAP) Financial Information (Unaudited)

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