Moelis & Company (NYSE: MC) today reported financial results for the third quarter ended September 30, 2019. The Firm’s revenues of $231.7 million increased 12% over the prior year period. The Firm reported third quarter 2019 GAAP net income of $54.7 million, or $0.73 per share (diluted), compared with $44.9 million, or $0.61 per share (diluted), in the prior year period. On an Adjusted basis, the Firm reported net income of $51.7 million, or $0.76 per share (diluted), for the third quarter of 2019, which compares with $42.3 million of net income, or $0.62 per share (diluted), in the prior year period.

Total revenues of $523.0 million for the first nine months of 2019 represented a decrease of 19% over the prior year period. GAAP net income for the period was $108.5 million, or $1.52 per share (diluted), as compared with $152.0 million, or $2.06 per share (diluted), in the prior year period. On an Adjusted basis, the Firm reported net income of $107.8 million, or $1.58 per share (diluted), for the first nine months of 2019, as compared with $150.3 million, or $2.23 per share (diluted), in the prior year period. GAAP and Adjusted net income for the first nine months of 2019 include tax benefits of $0.25 per share and $0.26 per share, respectively, related to the settlement of share based awards.

“Our record third quarter performance was a result of positive momentum across all products, with our overall average fees increasing meaningfully. We earned higher M&A average fees on both middle market transactions, and deal values greater than $5 billion, and restructuring had its strongest quarter ever, demonstrating the depth and breadth of our platform,” said Ken Moelis, Chairman and Chief Executive Officer.

“As we approach year-end, I am encouraged by our activity levels, conversations with clients, and our ability to execute. We recently announced the hiring of four Managing Directors in the U.S. and Europe and have a solid pipeline of both internal and external senior level talent to augment the 11 Managing Director additions made year-to-date.”

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 79% 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 21% is owned by other partners of Moelis & Company Group LP and is primarily subject to U.S. federal tax at the partner level (certain state and local and foreign income taxes are incurred at the company level). The Adjusted results included herein apply certain adjustments from our GAAP results, including the assumption that 100% of the Firm’s third quarter 2019 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 $231.7 million in the third quarter of 2019, as compared with $207.7 million in the prior year period, representing an increase of 12% and our largest third quarter of revenues on record. This compares favorably with an 11% decrease in the number of global completed M&A transactions in the same period1. The increase in quarterly revenues was driven by higher average fees earned per completed transaction as compared with the prior year period. In addition, the increase in revenues was driven by continued and significant growth in restructuring activity over the prior year period.

For the first nine months of 2019, revenues were $523.0 million as compared with $647.5 million in the same period of 2018.

We continued to execute on our strategy of organic growth. In the first nine months of 2019 we promoted five of our advisory professionals to Managing Director and hired six external Managing Directors to enhance our expertise in important sectors, products and regions. The external hires include two Managing Directors in the U.S. who will provide financial and strategic advice to fintech and specialty finance clients, respectively. In addition, we recently hired two Managing Directors in Europe to expand our coverage of clients in the Benelux and Nordic regions, and to strengthen our expertise in the technology, media, and telecom sectors.

1 Source: Thomson Financial as of October 4, 2019; includes all transactions greater than $100 million in value

Expenses

The following tables set forth information relating to the Firm’s operating expenses.

Total operating expenses on a GAAP basis were $177.4 million for the third quarter and $425.2 million in the first nine months of 2019. On an Adjusted basis, operating expenses were $169.3 million for the third quarter of 2019 as compared with $153.6 million in the prior year period and $412.2 million for the first nine months of 2019 as compared with $480.3 million in the prior year period. The increase in operating expenses for the third quarter of 2019 was associated with increased revenues, which drove increased compensation and benefits expenses, as well as a modest increase in non-compensation expenses. The decrease in operating expenses for the first nine months of 2019 was primarily associated with a decline in revenues, which drove decreased compensation and benefits expenses in the current year period.

Compensation and benefits expenses on a GAAP basis were $141.7 million in the third quarter and $316.3 in the first nine months of 2019. Adjusted compensation and benefits expenses were $133.6 million for the third quarter and $303.3 million for the first nine months of 2019. This compares with $119.4 million and $372.3 million in the third quarter and first nine months of 2018, respectively. The Adjusted compensation and benefits ratio for the current quarter was 57.6%, and 58.0% for the first nine months of 2019.

Non-compensation expenses on a GAAP and Adjusted basis were $35.7 million for the third quarter of 2019 as compared with $34.1 million for the prior year period. Our non-compensation expense ratio was 15.4% in the current quarter, down from 16.4% in the prior year period. For the first nine months of 2019, GAAP and Adjusted non-compensation expenses were $108.9 million, as compared with $107.9 million in the same period of the prior year.

Other Income (Expenses)

Other income (expenses) on a GAAP basis was $13.6 million in the third quarter and $19.3 million for the first nine months of 2019. On an Adjusted basis, other income (expenses) was $5.5 million in the third quarter of 2019 as compared with $1.0 million in the prior year period. In the third quarter of 2019, we recorded a GAAP gain of $12.6 million related to the September 2019 share sale of our investment in Moelis Australia. Compensation expense associated with this gain was reclassified from compensation and benefits to other income (expenses) on an adjusted basis. As a result, the net gain associated with the share sale of our investment in Australia included in Adjusted other income (expenses) was $5.4 million. For the first nine months of 2019, other income (expenses) on an Adjusted basis was $7.4 million as compared with $2.2 million for the first nine months of 2018 and include the third quarter gain mentioned above.

Provision for Income Taxes

The corporate partner (Moelis & Company) currently owns 79% of the operating partnership (Moelis & Company Group LP) and is subject to corporate U.S. federal and state income tax. Income on the remaining 21% 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 2019 income was taxed at our effective corporate tax rate of 24.6% versus 24.1% in the prior year period.

Capital Management and Balance Sheet

On October 30, 2019, the Board of Directors of Moelis & Company declared a quarterly dividend of $0.50 per share, which will be paid on December 13, 2019 to common stockholders of record on November 11, 2019.

Moelis & Company continues to maintain a strong financial position, and as of September 30, 2019, held cash and liquid investments of $161.6 million and had no debt or goodwill.

During the third quarter of 2019, we repurchased 74,655 shares of our common stock for a total cost of $2.5 million.

Earnings Call

We will host a conference call beginning at 5:00pm ET on Wednesday, October 30, 2019, accessible via telephone and the internet. Ken Moelis, Chairman and Chief Executive Officer, and Joe Simon, Chief Financial Officer, will review our third quarter 2019 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 2019 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 10135658.

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 adjusting the accounting impact of certain items 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)

(a) Reflects a reclassification of $0.9 million of other income to compensation and benefits expense associated with the forfeiture of fully vested awards and enforcement of non-compete provisions.

(b) Reflects the reclassification of $7.2 million of compensation and benefits expense associated with the Firm's $12.6 million gain on its sale of 12.5 million shares of Moelis Australia. The net gain remaining within other income (expenses) associated with this sale is $5.4 million.

(c) An adjustment has been made to illustrate the result as if 100% of the Firm’s income is being taxed at our corporate effective tax rate for the period stated.

(d) Assumes all outstanding Class A partnership units have been exchanged into Class A common stock.

(a) Expense associated with the amortization of Restricted Stock Units (“RSUs”) and stock options granted in connection with the IPO. In accordance with GAAP, amortization expense of RSUs and stock options granted in connection with the IPO will be recognized over the five year vesting period.

(b) Reflects a reclassification of $0.4 million of other income to compensation and benefits expense associated with enforcement of non-compete provisions.

(c) Reflects the netting of $0.3 million of GAAP adjustments made to the amount pursuant to the Company's Tax Receivable Agreement against provision for income taxes.

(d) An adjustment has been made to illustrate the result as if 100% of the Firm’s income is being taxed at our corporate effective tax rate of 24.1% for the period stated, which includes tax benefits of $0.2 million primarily related to the settlement of share-based awards. Excluding such benefits, our effective tax rate for the period presented would have been 24.6%. Our corporate effective tax rate of 24.1% excludes any benefits or costs relating to the adjustment to the step-up in tax basis in Group LP assets in connection with the partnership unit exchanges and offerings. Such adjustment was a net economic benefit of $1.0 million which is not included in the corporate effective tax rate for the period presented.

(e) Assumes all outstanding Class A partnership units have been exchanged into Class A common stock.

(a) Expense associated with the amortization of RSUs and stock options granted in connection with the IPO. In accordance with GAAP, amortization expense of RSUs and stock options granted in connection with the IPO will be recognized over the five year vesting period; as of April 2019 such awards have been fully expensed.

(b) Reflects a reclassification of $4.6 million of other income to compensation and benefits expense associated with the forfeiture of fully vested awards and enforcement of non-compete provisions.

(c) Reflects the reclassification of $7.2 million of compensation and benefits expense associated with the Firm's $12.6 million gain on its sale of 12.5 million shares of Moelis Australia. The net gain remaining within Other income (expenses) associated with this sale is $5.4 million.

(d) An adjustment has been made to illustrate the result as if 100% of the Firm’s income is being taxed at our corporate effective tax rate for the period stated. Our tax provision includes an excess tax benefit related to the settlement of share-based awards of $17.8 million; excluding such discrete benefit, our effective tax rate for the period presented would have been 25.2%.

(e) Assumes all outstanding Class A partnership units have been exchanged into Class A common stock.

(a) Expense associated with the amortization of RSUs and stock options granted in connection with the IPO. In accordance with GAAP, amortization expense of RSUs and stock options granted in connection with the IPO will be recognized over the five year vesting period.

(b) Reflects a reclassification of $1.0 million of other income to compensation and benefits expense associated with the forfeiture of fully vested Class A partnership units and enforcement of non-compete provisions.

(c) Reflects the netting of $0.3 million of GAAP adjustments made to the amount pursuant to the Company's Tax Receivable Agreement against provision for income taxes.

(d) An adjustment has been made to illustrate the result as if 100% of the Firm’s income is being taxed at our corporate effective tax rate of 13.2% for the period stated, which includes tax benefits of $20.4 million primarily related to the settlement of share-based awards. Excluding such benefits, our effective tax rate for the period presented would have been 25.0%. Our corporate effective tax rate of 13.2% excludes any benefits or costs relating to the adjustment to the step-up in tax basis in Group LP assets in connection with the partnership unit exchanges and offerings. Such adjustment was a net economic benefit of $1.0 million which is not included in the corporate effective tax rate for the period presented.

(e) Assumes all outstanding Class A partnership units have been exchanged into Class A common stock.

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