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EX-32.2 - EX-32.2 - Moelis & Comc-20170930ex322a199f0.htm
EX-32.1 - EX-32.1 - Moelis & Comc-20170930ex32116b3c1.htm
EX-31.2 - EX-31.2 - Moelis & Comc-20170930ex312ae92d9.htm
EX-31.1 - EX-31.1 - Moelis & Comc-20170930ex311fc46fc.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                 

 

Commission File Number: 001‑36418

 

Moelis & Company

(Exact name of registrant as specified in its charter)

 

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

46‑4500216
(I.R.S. Employer
Identification No.)

399 Park Avenue, 5th Floor, New York NY
(Address of principal executive offices)

10022
(Zip Code)

 

(212) 883‑3800

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐
(Do not check if a
smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b‑2 of the Exchange Act). ☐ Yes  ☒ No

 

As of October 19, 2017, there were 33,297,858 shares of Class A common stock, par value $0.01 per share, and 20,045,736 shares of Class B common stock, par value $0.01 per share, outstanding.

 

 

 


 

2


 

3


 

Moelis & Company

Condensed Consolidated Statements of Financial Condition

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2017

 

2016

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

127,600

 

$

318,926

 

Restricted cash

 

 

789

 

 

659

 

Receivables:

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts of $1,500 and $475 as of September 30, 2017 and December 31, 2016, respectively

 

 

50,540

 

 

23,158

 

Other receivables

 

 

11,863

 

 

7,293

 

Total receivables

 

 

62,403

 

 

30,451

 

Deferred compensation

 

 

9,113

 

 

8,701

 

Investments at fair value (cost basis $116,531 and $33,593 as of September 30, 2017 and December 31, 2016, respectively)

 

 

116,366

 

 

33,383

 

Equity method investments

 

 

45,734

 

 

20,873

 

Equipment and leasehold improvements, net

 

 

10,345

 

 

8,397

 

Deferred tax asset

 

 

405,730

 

 

167,791

 

Prepaid expenses and other assets

 

 

17,009

 

 

9,619

 

Total assets

 

$

795,089

 

$

598,800

 

Liabilities and Equity

 

 

 

 

 

 

 

Compensation payable

 

$

110,741

 

$

131,591

 

Accounts payable and accrued expenses

 

 

9,768

 

 

14,326

 

Dividends payable

 

 

 —

 

 

68,066

 

Amount due pursuant to tax receivable agreement

 

 

314,747

 

 

120,936

 

Deferred revenue

 

 

3,848

 

 

2,971

 

Other liabilities

 

 

8,913

 

 

9,469

 

Total liabilities

 

 

448,017

 

 

347,359

 

Commitments and Contingencies (See Note 12)

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share (1,000,000,000 shares authorized, 33,899,875 issued and 33,247,275 outstanding at September 30, 2017; 1,000,000,000 authorized, 20,948,998 issued and 20,561,108 outstanding at December 31, 2016)

 

 

339

 

 

210

 

Class B common stock, par value $0.01 per share (1,000,000,000 shares authorized, 20,045,736 issued and outstanding at September 30, 2017; 1,000,000,000 authorized, 31,138,193 issued and outstanding at December 31, 2016)

 

 

200

 

 

311

 

Treasury stock, at cost; 652,600 and 387,890 shares as of September 30, 2017 and December 31, 2016, respectively

 

 

(20,762)

 

 

(10,930)

 

Additional paid-in-capital

 

 

454,745

 

 

291,026

 

Retained earnings (accumulated deficit)

 

 

(99,136)

 

 

(68,229)

 

Accumulated other comprehensive income (loss)

 

 

543

 

 

(543)

 

Total Moelis & Company equity

 

 

335,929

 

 

211,845

 

Noncontrolling interests

 

 

11,143

 

 

39,596

 

Total equity

 

 

347,072

 

 

251,441

 

Total liabilities and equity

 

$

795,089

 

$

598,800

 

See notes to the condensed consolidated financial statements (unaudited).

4


 

   

Moelis & Company

Condensed Consolidated Statements of Operations

(Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

    

2017

    

2016

    

2017

    

2016

Revenues

 

$

170,041

 

$

150,676

 

$

515,448

 

$

408,765

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

99,694

 

 

88,046

 

 

302,228

 

 

240,912

Occupancy

 

 

4,393

 

 

4,096

 

 

12,670

 

 

14,941

Professional fees

 

 

4,494

 

 

2,804

 

 

13,674

 

 

7,551

Communication, technology and information services

 

 

6,427

 

 

5,496

 

 

18,636

 

 

16,101

Travel and related expenses

 

 

7,294

 

 

4,490

 

 

21,990

 

 

16,452

Depreciation and amortization

 

 

891

 

 

817

 

 

2,570

 

 

2,359

Other expenses

 

 

6,969

 

 

4,813

 

 

18,059

 

 

10,885

Total expenses

 

 

130,162

 

 

110,562

 

 

389,827

 

 

309,201

Operating income (loss)

 

 

39,879

 

 

40,114

 

 

125,621

 

 

99,564

Other income and (expenses)

 

 

14,955

 

 

187

 

 

32,888

 

 

391

Income (loss) from equity method investments

 

 

2,791

 

 

1,562

 

 

4,565

 

 

3,897

Income (loss) before income taxes

 

 

57,625

 

 

41,863

 

 

163,074

 

 

103,852

Provision for income taxes

 

 

14,354

 

 

6,550

 

 

30,900

 

 

16,715

Net income (loss)

 

 

43,271

 

 

35,313

 

 

132,174

 

 

87,137

Net income (loss) attributable to noncontrolling interests

 

 

24,066

 

 

25,824

 

 

77,961

 

 

63,785

Net income (loss) attributable to Moelis & Company

 

$

19,205

 

$

9,489

 

$

54,213

 

$

23,352

Weighted-average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

32,505,940

 

 

20,926,745

 

 

29,094,514

 

 

20,807,189

Diluted

 

 

39,784,633

 

 

24,301,063

 

 

35,872,847

 

 

23,516,239

Net income (loss) per share attributable to holders of shares of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.59

 

$

0.45

 

$

1.86

 

$

1.12

Diluted

 

$

0.48

 

$

0.39

 

$

1.51

 

$

0.99

Dividends declared per share of Class A common stock

 

$

0.37

 

$

0.32

 

$

2.11

 

$

1.72

See notes to the condensed consolidated financial statements (unaudited).

5


 

Moelis & Company

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Net income

 

$

43,271

 

$

35,313

 

$

132,174

 

$

87,137

 

Unrealized gain (loss) on investments

 

 

(39)

 

 

(148)

 

 

(144)

 

 

(105)

 

Foreign currency translation adjustment, net of tax

 

 

991

 

 

(668)

 

 

2,378

 

 

(1,368)

 

Other comprehensive income (loss)

 

 

952

 

 

(816)

 

 

2,234

 

 

(1,473)

 

Comprehensive income (loss)

 

 

44,223

 

 

34,497

 

 

134,408

 

 

85,664

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

24,549

 

 

25,312

 

 

79,109

 

 

62,864

 

Comprehensive income (loss) attributable to Moelis & Company

 

$

19,674

 

$

9,185

 

$

55,299

 

$

22,800

 

See notes to the condensed consolidated financial statements (unaudited).

6


 

Moelis & Company

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

    

2017

    

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

 

$

132,174

 

$

87,137

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Bad debt expense

 

 

1,521

 

 

124

 

Depreciation and amortization

 

 

2,570

 

 

2,359

 

(Income) loss from equity method investments

 

 

(4,565)

 

 

(3,897)

 

Equity-based compensation

 

 

72,912

 

 

56,313

 

Deferred tax provision

 

 

13,746

 

 

(1,931)

 

Gain on equity method investment

 

 

(31,971)

 

 

 —

 

Other

 

 

4,067

 

 

700

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(28,588)

 

 

2,763

 

Other receivables

 

 

(4,594)

 

 

1,234

 

Prepaid expenses and other assets

 

 

(7,079)

 

 

1,432

 

Deferred compensation

 

 

(321)

 

 

(841)

 

Compensation payable

 

 

(21,644)

 

 

(53,017)

 

Accounts payable and accrued expenses

 

 

(4,864)

 

 

(7,664)

 

Deferred revenue

 

 

876

 

 

6,324

 

Dividends received

 

 

11,672

 

 

804

 

Other liabilities

 

 

(628)

 

 

2,075

 

Net cash provided by (used in) operating activities

 

 

135,284

 

 

93,915

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of investments

 

 

(171,764)

 

 

(95,919)

 

Proceeds from sales of investments

 

 

88,750

 

 

101,000

 

Return of capital from equity method investments

 

 

 —

 

 

 9

 

Note payments received from employees

 

 

705

 

 

 —

 

Notes issued to employees

 

 

(400)

 

 

(852)

 

Purchase of equipment and leasehold improvements

 

 

(4,553)

 

 

(2,737)

 

Change in restricted cash

 

 

(85)

 

 

(30)

 

Net cash provided by (used in) investing activities

 

 

(87,347)

 

 

1,471

 

Cash flows from financing activities

 

 

 

 

 

 

 

Dividends and distributions

 

 

(232,284)

 

 

(135,751)

 

Payments under tax receivable agreement

 

 

(5,032)

 

 

 —

 

Payments to settle employee tax obligations on share-based awards

 

 

(9,832)

 

 

(2,621)

 

Proceeds from exercise of stock options

 

 

5,571

 

 

 —

 

Class A partnership units and other equity purchased

 

 

(229)

 

 

 —

 

Net cash provided by (used in) financing activities

 

 

(241,806)

 

 

(138,372)

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

2,543

 

 

(2,425)

 

Net increase (decrease) in cash and cash equivalents

 

 

(191,326)

 

 

(45,411)

 

Cash and cash equivalents, beginning of period

 

 

318,926

 

 

248,022

 

Cash and cash equivalents, end of period

 

$

127,600

 

$

202,611

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Income taxes

 

$

26,196

 

$

20,609

 

Dividends paid, declared in the prior year

 

$

68,066

 

$

 —

 

Other non-cash activity

 

 

 

 

 

 

 

Dividend equivalents issued

 

$

20,911

 

$

10,276

 

Class A Partnership Units or other equity converted into Class A Common Stock

 

$

52,240

 

$

783

 

Cumulative Effect Adjustment upon Adoption of ASU 2016-09

 

$

658

 

$

 —

 

Forfeiture of fully-vested Group LP units or other equity units

 

$

36

 

$

 

See notes to the condensed consolidated financial statements (unaudited).

 

 

7


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Moelis & Company

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

Accumulated

 

 

 

 

 

 

 

 

Class A

 

Class B

 

 

 

Class A

 

Class B

 

 

 

 

Additional

 

Earnings

 

Other

 

 

 

 

 

 

 

 

Common

 

Common

 

Treasury

 

Common

 

Common

 

Treasury

 

Paid-In

 

(Accumulated

 

Comprehensive

 

Noncontrolling

 

Total

 

    

Stock

    

Stock

    

Stock

    

Stock

    

Stock

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Interests

    

 Equity

Balance as of January 1, 2017

 

20,948,998

 

31,138,193

 

(387,890)

 

$

210

 

$

311

 

$

(10,930)

 

$

291,026

 

$

(68,229)

 

$

(543)

 

$

39,596

 

$

251,441

Cumulative Effect Adjustment upon Adoption of ASU 2016-09

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,855

 

 

(4,197)

 

 

 —

 

 

 —

 

 

658

Balance as of January 1, 2017, as adjusted

 

20,948,998

 

31,138,193

 

(387,890)

 

$

210

 

$

311

 

$

(10,930)

 

$

295,881

 

$

(72,426)

 

$

(543)

 

$

39,596

 

$

252,099

Net income (loss)

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

54,213

 

 

 —

 

 

77,961

 

 

132,174

Equity-based compensation

 

1,602,236

 

 —

 

 —

 

 

16

 

 

 —

 

 

 —

 

 

71,228

 

 

 —

 

 

 —

 

 

1,668

 

 

72,912

Other comprehensive income (loss)

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,086

 

 

1,148

 

 

2,234

Dividends declared ($2.11 per share of Class A Common Stock) and distributions

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20,911

 

 

(80,923)

 

 

 —

 

 

(104,206)

 

 

(164,218)

Treasury Stock Purchases

 

 —

 

 —

 

(264,710)

 

 

 —

 

 

 —

 

 

(9,832)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9,832)

Exercise of stock options

 

256,270

 

 —

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

5,569

 

 

 —

 

 

 —

 

 

 —

 

 

5,571

Issuance of Class A common stock and cancellation of Class B common stock in connection with offerings and other exchanges

 

11,092,457

 

(11,092,457)

 

 —

 

 

111

 

 

(111)

 

 

 —

 

 

57,035

 

 

 —

 

 

 —

 

 

(5,024)

 

 

52,011

Equity-based payments to non-employees

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,066

 

 

 —

 

 

 —

 

 

 —

 

 

4,066

Other

 

(86)

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

55

 

 

 —

 

 

 —

 

 

 —

 

 

55

Balance as of September 30, 2017

 

33,899,875

 

20,045,736

 

(652,600)

 

$

339

 

$

200

 

$

(20,762)

 

$

454,745

 

$

(99,136)

 

$

543

 

$

11,143

 

$

347,072

Balance as of January 1, 2016

 

20,536,740

 

31,229,236

 

(263,622)

 

$

205

 

$

312

 

$

(7,616)

 

$

190,703

 

$

(15,338)

 

$

108

 

$

89,044

 

$

257,418

Net income (loss)

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

23,352

 

 

 —

 

 

63,785

 

 

87,137

Equity-based compensation

 

253,757

 

(2,132)

 

 —

 

 

 3

 

 

 —

 

 

 —

 

 

53,934

 

 

 —

 

 

 —

 

 

2,376

 

 

56,313

Other comprehensive income (loss)

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(552)

 

 

(921)

 

 

(1,473)

Dividends declared ($1.72 per share of Class A Common Stock) and distributions

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,276

 

 

(45,610)

 

 

 —

 

 

(100,417)

 

 

(135,751)

Treasury stock purchases

 

 —

 

 —

 

(98,126)

 

 

 —

 

 

 —

 

 

(2,621)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,621)

Class A Partnership Units and other equity purchased or converted into Class A Common Stock

 

103,538

 

(88,911)

 

 —

 

 

 1

 

 

(1)

 

 

 —

 

 

900

 

 

 —

 

 

 —

 

 

(117)

 

 

783

Net excess tax benefit (detriment) from equity-based compensation

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(48)

 

 

 —

 

 

 —

 

 

 —

 

 

(48)

Other

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

766

 

 

 —

 

 

 —

 

 

 —

 

 

766

Balance as of September 30, 2016

 

20,894,035

 

31,138,193

 

(361,748)

 

$

209

 

$

311

 

$

(10,237)

 

$

256,531

 

$

(37,596)

 

$

(444)

 

$

53,750

 

$

262,524

 

 

 

 

8


 

 

1. ORGANIZATION AND BASIS OF PRESENTATION

Moelis & Company and its consolidated subsidiaries (the “Company,” “we,” “our,” or “us”) is a leading global investment bank, incorporated in Delaware. Prior to the Company’s IPO, the business operated as a Delaware limited partnership that commenced operations during 2007. Following the IPO, the operations are owned by Moelis & Company Group LP (“Group LP”), a U.S. Delaware limited partnership, and Group LP is controlled by Moelis & Company. Moelis & Company’s shareholders are entitled to receive a portion of Group LP’s economics through their direct ownership interests in shares of Class A common stock of Moelis & Company. The noncontrolling interest owners of Group LP (not Moelis & Company) receive economics of the operations primarily through their ownership interests in Group LP partnership units.

The Company’s activities as an investment banking advisory firm constitute a single business segment offering clients, including corporations, governments and financial sponsors, a range of advisory services with expertise across all major industries in mergers and acquisitions, recapitalizations and restructurings and other corporate finance matters.

Basis of Presentation—The condensed consolidated financial statements of Moelis & Company include its partnership interests in Group LP, its equity interest in the sole general partner of Group LP, Moelis & Company Group GP LLC (“Group GP”), and its interests in its subsidiaries. Moelis & Company will operate and control all of the business and affairs of Group LP and its operating entity subsidiaries indirectly through its equity interest in Group GP. The Company operates through the following subsidiaries:

· Moelis & Company LLC (“Moelis U.S.”), a Delaware limited liability company, a registered broker‑dealer with the U.S. Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

· Moelis & Company International Holdings LLC (“Moelis International”), a Delaware limited liability company, owns the following entities and investment:

·

Moelis & Company UK LLP (“Moelis UK”), a limited liability partnership registered under the laws of England and Wales. In addition to the United Kingdom, Moelis UK maintains operations through the following branches:

·

Moelis & Company UK LLP, French Branch (French branch)

·

Moelis & Company Europe Limited, Frankfurt am Main (German branch)

·

Moelis & Company UK LLP, DIFC Branch (Dubai branch)

·

Moelis & Company Asia Limited (“Moelis Asia”), a limited company incorporated in Hong Kong licensed under the Hong Kong Securities and Futures Ordinance to provide financial advisory services. In addition to Hong Kong, Moelis Asia maintains operations in Beijing China through Hong Kong Moelis & Company Asia Limited Beijing Representative Office, as well as having a wholly-owned Chinese subsidiary, Moelis & Company Consulting (Beijing) Company Limited.

·

Moelis & Company India Private Limited, a private limited company incorporated in Mumbai, India.

·

Moelis & Company Assessoria Financeira Ltda. (“Moelis Brazil”), a limited liability company incorporated in São Paulo, Brazil.

·

An equity method investment in Moelis Australia Limited (“Moelis Australia”), a public company listed on the Australian Securities Exchange

9


 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting—The Company prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As permitted by the interim reporting rules and regulations set forth by the SEC, the condensed consolidated financial statements presented exclude certain financial information and footnote disclosures normally included in audited financial statements prepared in accordance with U.S. GAAP. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to fairly present the accompanying unaudited condensed consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated and combined audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. 

Consolidation—The Company’s policy is to consolidate (i) entities, other than limited partnerships, in which it has a controlling financial interest, (ii) variable interest entities where the Company has a variable interest and is deemed to be the primary beneficiary and (iii) limited partnerships where the Company has ownership of the majority of voting interests. When the Company does not have a controlling interest in an entity, but exerts significant influence over the entity’s operating and financial decisions, the Company applies the equity method of accounting in which it records in earnings its share of income or losses of the entity. All intercompany balances and transactions with the Company’s subsidiaries have been eliminated in consolidation.

Use of Estimates—The preparation of condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period in which they are determined to be necessary.

In preparing the condensed consolidated financial statements, management makes estimates and assumptions regarding:

·

the adequacy of the allowance for doubtful accounts;

·

the realization of deferred taxes;

·

the measurement of equity‑based compensation; and

·

other matters that affect the reported amounts and disclosures of contingencies in the financial statements.

 

Cash and Cash Equivalents—Cash and cash equivalents include all short‑term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase.

As of September 30, 2017, the Company had cash equivalents of $68,329 (December 31, 2016: $246,933) invested primarily in government securities money markets, government debt securities and U.S. Treasury instruments. Additionally, as of September 30, 2017, the Company had cash of $59,271 (December 31, 2016: $71,993) maintained in U.S. and non‑U.S. bank accounts, of which most bank account balances had little or no insurance coverage (most balances are held in U.S. and U.K. accounts which exceeded the U.S. Federal Deposit Insurance Corporation and U.K. Financial Services Compensation Scheme coverage limits).

 

10


 

Restricted Cash—As of September 30, 2017 and December 31, 2016, the Company held cash of $789 and $659, respectively, in restricted collateral deposits primarily held by certain non-U.S. subsidiaries.

Receivables—The accompanying condensed consolidated statements of financial condition present accounts receivable balances net of allowance for doubtful accounts based on the Company’s assessment of the collectability of customer accounts.

The Company maintains an allowance for doubtful accounts that, in management’s opinion, provides for an adequate reserve to cover losses that may be incurred. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable, and the current economic conditions that may affect a customer’s ability to pay such amounts owed to the Company.

After concluding that a reserved accounts receivable is no longer collectible, the Company will charge‑off the receivable. This is determined based on several factors including the age of the accounts receivable and the credit worthiness of the customer. This has the effect of reducing both the gross receivable and the allowance for doubtful accounts.

 

Deferred Compensation—Deferred compensation costs represent arrangements with certain employees whereby cash payments are subject to a required period of service subsequent to payment by the Company. These amounts are charged to expenses over the period that the employee is required to provide services in order to vest in the payment.

Financial Instruments at Fair Value—Fair value is generally based on quoted prices, however if quoted market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations, price activity for equivalent instruments and valuation pricing models. The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument, the characteristics specific to the instrument and the state of the marketplace (including the existence and transparency of transactions between market participants). Financial instruments with readily‑available actively quoted prices or for which fair value can be measured from actively‑quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1—Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the quoted price.

Level 2—Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3—Pricing inputs are unobservable for the instruments and include situations where there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company’s management.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the

11


 

significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the instrument.

For level 3 investments in which pricing inputs are unobservable and limited market activity exists, management’s determination of fair value is based on the best information available, may incorporate management’s own assumptions and involves a significant degree of judgment.

 

Equity Method Investments—The Company accounts for its equity method investments under the equity method of accounting as the Company does not control these entities but has the ability to exercise significant influence. The amounts recorded on the condensed consolidated financial statements of financial condition reflect the Company’s share of contributions made to, distributions received from, and the equity earnings and losses of, the investments. The Company reflects its share of gains and losses of the investment in income (loss) from equity method investments in the condensed consolidated statements of operations. Certain adjustments have been made to account for the Company’s equity method investment in Moelis Australia under US GAAP as Moelis Australia Limited follows local accounting principles under Australian Accounting Standards.

Equipment and Leasehold Improvements—Office equipment and furniture and fixtures are stated at cost less accumulated depreciation, which is determined using the straight‑line method over the estimated useful lives of the assets, ranging from three to seven years, respectively. Leasehold improvements are stated at cost less accumulated amortization, which is determined using the straight‑line method over the lesser of the term of the lease or the estimated useful life of the asset.

Major renewals and improvements are capitalized and minor replacements, maintenance and repairs are charged to expenses as incurred. Upon retirement or disposal of assets, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated statements of financial condition and any gain or loss is reflected in the condensed consolidated statements of operations.

 

Deferred Tax Asset and Amount Due Pursuant to Tax Receivable Agreement—In conjunction with the IPO, the Company was treated for U.S. federal income tax purposes as having directly purchased Class A partnership units in Group LP from the existing unitholders. Additional Group LP Class A partnership units may be exchanged for shares of Class A common stock in the Company. The initial purchase and future exchanges are expected to result in an increase in the tax basis of Group LP’s assets attributable to the Company’s interest in Group LP. These increases in the tax basis of Group LP’s assets attributable to the Company’s interest in Group LP would not have been available but for the initial purchase and future exchanges. Such increases in tax basis are likely to increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of income tax the Company would otherwise be required to pay in the future. As a result, the Company records a deferred tax asset for such increase in tax basis.

The Company has entered into a tax receivable agreement with its eligible Managing Directors that will provide for the payment by the Company to its eligible Managing Directors of 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax or franchise tax that the Company actually realizes as a result of (a) the increases in tax basis attributable to exchanges by its eligible Managing Directors and (b) tax benefits related to imputed interest deemed to be paid by the Company as a result of this tax receivable agreement. The Company expects to benefit from the remaining 15% of cash savings, if any, in income tax that it realizes and record any such estimated tax benefits as an increase to additional paid-in-capital. For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing the Company’s actual income tax liability to the amount of such taxes that it would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Group LP as a result of the exchanges and had it not entered into the tax receivable agreement. The term of the tax receivable agreement commenced upon consummation of the IPO and will continue until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement. The Company has recorded the estimated tax benefits related to the increase in tax basis and imputed interest as a result of the initial purchase and subsequent exchanges described above as a deferred tax asset in the condensed consolidated statements of financial condition. The amount due to its

12


 

eligible Managing Directors related to the tax receivable agreement as a result of the initial purchase and subsequent exchanges described above is recorded as amount due pursuant to tax receivable agreement in the condensed consolidated statements of financial condition. The amounts recorded for the deferred tax asset and the liability for our obligations under the tax receivable agreement are estimates. Any adjustments to our estimates subsequent to their initial establishment will be included in net income (loss). Future exchanges of Class A partnership units in Group LP for Class A common shares in the Company will be accounted for in a similar manner.

 

Revenue and Expense Recognition—The Company recognizes revenues from providing advisory services when earned and collection is reasonably assured. Upfront fees are recognized over the estimated period that the related services are performed. Transaction‑related fees are recognized when all services for a transaction have been provided, specified conditions have been met and the transaction closes. Underwriting revenues are recognized when the offering is deemed complete and is presented net of related expenses. Deferred revenues are recorded for fees received that have not yet been earned. Expenses are reflected on the condensed consolidated statements of operations, net of client reimbursements. Reimbursable expenses billed to clients totaled $4,248 and $4,051 for the three months ended September 30, 2017 and 2016, respectively, and $10,583 and $11,445 for the nine months ended September 30, 2017 and 2016, respectively.

Equity‑based Compensation—The Company recognizes the cost of employee services received in exchange for an equity instrument award. The cost is based on its grant-date fair value based on quoted market prices at the time of grant amortized over the service period required by the award’s vesting terms. The Company records as treasury stock shares repurchased from its employees for the purpose of settling tax liabilities incurred upon the vesting of restricted stock units (“RSUs”). The Company records dividends in kind, net of forfeitures, on outstanding RSUs as a dividend payment and a charge to equity. Dividends in kind on RSUs are subject to the same vesting conditions as the underlying RSUs on which they were accrued. Dividends in kind will be forfeited if the award does not vest.

For the purposes of calculating diluted net income (loss) per share to holders of Class A common stock, unvested service‑based awards are included in the diluted weighted average shares of Class A common stock outstanding using the treasury stock method. See Note 7 for further discussion.

The Company has a retirement plan whereby a retiring employee generally will not forfeit certain qualifying incentive RSUs granted during employment if at retirement the employee meets certain requirements. For qualifying awards issued prior to December 1, 2016, the employee must (i) be at least 54 years old and (ii) have provided at least 8 consecutive years of service to the Company. For qualifying awards issued on or after December 1, 2016, (i) the employee must be at least 56 years old, (ii) the employee must have provided at least 5 consecutive years of service to the Company and (iii) the total of (i) and (ii) must be equal to at least 65 years. Any such RSUs will continue to vest on their applicable vesting schedule, subject to noncompetition and other terms. Over time a greater number of employees may become retirement eligible and the related requisite service period over which we will expense these awards will be shorter than the stated vesting period. Any unvested RSUs prior to meeting the stated requisite service period or retirement eligibility date are eligible to receive dividends in kind; however, the right to dividends in kind will be forfeited if the underlying award does not vest.

Effective January 1, 2017, the Company adopted a change in accounting policy in accordance with Accounting Standards Update 2016-09, “Compensation—Stock Compensation (Topic 718)” (“ASU 2016-09”) to account for forfeitures as they occur. The change was applied on a modified retrospective basis with a cumulative decrease to retained earnings and an increase in additional paid-in capital (“APIC”) of $4,855 as of January 1, 2017. The tax effect of this adjustment increased deferred tax assets and retained earnings by $658. No prior periods were adjusted as a result of this change in accounting policy.

 

Income Taxes—The Company accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”), which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in which the differences are expected to reverse. Such net tax effects on temporary differences are reflected on the

13


 

Company’s condensed consolidated statements of financial condition as deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more‑likely‑than‑not that some portion or all of the deferred tax assets will not be realized.

ASC 740‑10 prescribes a two‑step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. For the three and nine months ended September 30, 2017 and 2016, no unrecognized tax benefit was recorded. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. The Company reports income tax‑related interest and penalties relating to uncertain tax positions, if applicable, as a component of income tax expense. For the three and nine months ended September 30, 2017 and 2016, no such amounts were recorded.

Prior to January 1, 2017, all excess tax benefits resulting from exercise or settlement of share-based payment transactions were recognized in APIC and any tax deficiencies were either offset against APIC, or were recognized in the income statement under certain conditions. Under ASU 2016-09, all excess tax benefits and deficiencies are recognized as income tax benefits or expenses in the condensed consolidated statement of operations prospectively.

Under ASU 2016-09, the Company is now required to present excess tax benefits and detriments as an operating activity in the same manner as other cash flows related to income taxes rather than as a financing activity. The Company adopted these changes retrospectively, and prior year excess tax benefits are now reflected in changes in prepaid expenses and other assets within the condensed consolidated statement of cash flows.

Foreign Currency Translation—Assets and liabilities held in non‑U.S. dollar denominated currencies are translated into U.S. dollars at exchange rates in effect at the end of the reporting period. Revenues and expenses are translated at average exchange rates during the reporting period. A charge or credit is recorded to other comprehensive income to reflect the translation of these amounts to the extent the non‑U.S. currency is designated the functional currency of the subsidiary. Non‑functional currency related transaction gains and losses are immediately recorded in the condensed consolidated statements of operations.

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 requires a company to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for services provided. The amendment requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date”, which provides amendments that defer the effective date of ASU 2014-09 by one year. The amendments in this update are effective either retrospectively to each prior reporting period presented, or as a cumulative effect adjustment as of the date of adoption, during interim and annual periods beginning after December 15, 2017, with early adoption permitted beginning after December 15, 2016. The Company plans to adopt ASU 2014-09 using the modified retrospective approach, with a cumulative-effect adjustment upon adoption. The adoption of ASU 2014-09 is expected to affect the timing of revenue recognition and the presentation of reimbursable expenses billed to clients in our condensed and consolidated statements of operations. The Company plans to evaluate each engagement under the new guidance to determine whether revenue and deal-related expenses should be recognized at a point in time or over time. Reimbursed expenses will be presented gross in revenues and expenses. In addition, underwriting revenues, which are currently disclosed net of expenses, will be reported gross in our condensed and consolidated statements of operations.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 enhances the reporting

14


 

model for financial instruments by addressing certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. Key provisions require equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. In addition, the exit price notion must be used when measuring the fair value of financial instruments for disclosure purposes. ASU 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Upon initial evaluation, the adoption of ASU 2016-01 will not have a material impact on the Company.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments will retain lease classifications, distinguishing finance leases from operating leases, using criteria that is substantially similar for distinguishing capital leases from operating leases in previous guidance. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. Upon initial evaluation, the Company has determined it will record right-to-use assets and liabilities measured at the present value of reasonably certain lease payments on our consolidated statements of financial condition. We do not anticipate any material changes to our condensed and consolidated statements of operations.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides more standardized guidance to improve consistency surrounding the classification of certain cash payments and receipts between the operating, investing, and financing sections of the statement of cash flows. These transactions include the settlement of certain debt instruments, distributions received from equity-method investees and other transactions. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Upon initial evaluation, the primary impact is selecting one of two acceptable accounting treatments for distributions received from equity method investments. The Company currently follows the nature of distribution approach, therefore, we do not anticipate the adoption of ASU 2016-15 to have a material impact on our condensed and consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 provides clearer guidance related to current and deferred income taxes driven by intra-entity asset transfers. Specifically, this ASU states that an entity should recognize the income tax consequences of intra-entity transfers of assets other than inventory when they occur whereas in the past, certain entities did not recognize these impacts until the asset was sold to a third party. ASU 2016-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Upon initial evaluation, we do not expect the adoption of ASU 2016-16 to have a material impact on our condensed and consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows—Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires that entities include a reconciliation of changes in restricted cash in their cash flow statement. This will standardize the diversity in practice where some entities included such balances in their statement, while others omitted them. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Due to this new guidance, the Company will be required to include a reconciliation of changes in restricted cash in our condensed and consolidated statements of cash flows.

 

In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation” (“ASU 2017-09”). ASU 2017-09 provides greater clarity on issues regarding accounting for changes in terms or conditions of share-based payment awards. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Upon initial evaluation, we do not expect the adoption of ASU 2017-09 to have a material impact on our condensed and consolidated financial statements.

15


 

 

4. EQUITY METHOD INVESTMENTS

Moelis Australia

On April 1, 2010, the Company entered into a 50‑50 joint venture in Moelis Australia Holdings PTY Limited, investing a combination of cash and certain net assets in exchange for its interests. The remaining 50% was owned by an Australian trust established by and for the benefit of Moelis Australia senior executives.

On April 10, 2017, Moelis Australia Holdings PTY Limited consummated their initial public offering and became listed on the Australian Securities Exchange as Moelis Australia Limited. As a result of the offering, the Company’s ownership interest in Moelis Australia was diluted and the Company recognized a gain of approximately $15,170, recorded in other income and expenses on the condensed consolidated statement of operations. Contemporaneous with the offering, Moelis Australia agreed to terminate an asset management related revenue sharing agreement resulting in a payment to a third party, of which the Company recognized a charge of approximately $2,400 in income (loss) from equity method investments. Also, in connection with the offering and new shareholders agreement, the Company and Moelis Australia terminated a put option enabling the key senior Australian executive to sell his shares held in Moelis Australia back to the Company, and a call option held by the Company to purchase additional shares in Moelis Australia. On March 20, 2017, Moelis Australia declared a dividend, of which the Company received $11,672 on April 18, 2017. The Company accounted for the dividend as a return on investment and reduced the carrying value of the investment in Moelis Australia by $11,672.

On September 13, 2017, Moelis Australia completed an offering of 11,940,000 shares of common stock to raise additional capital. The issuance of shares further reduced Moelis & Company’s ownership interest in Moelis Australia. These shares were issued at a fair value greater than the carrying value of the ownership interest disposed, resulting in a gain of approximately $14,429, recorded in other income on the condensed and consolidated statement of operations. On October 30, 2017, Moelis Australia completed a conditional offering of 10,060,000 shares. See Note 16 of the condensed consolidated financial statements included in this Form 10-Q for further information.

Moelis Australia issued additional shares during 2017 related to acquisitions, which further reduced Moelis & Company’s ownership interest in Moelis Australia. The shares were issued at a fair value greater than the carrying value of the ownership interest disposed, resulting in a gain of approximately $2,372, recorded in other income and expenses on the condensed and consolidated statement of operations.

For the three months ended September 30, 2017 and 2016, income from this equity method investment of $2,806 and $1,571 was recorded, respectively, and for the nine months ended September 30, 2017 and 2016, income from this equity method investment of $4,592 and $2,176 was recorded, respectively.

Other Equity Method Investment

In June 2014, the Company made an investment of $265 into a general partner entity which invests third-party funds and is controlled by a related party, Moelis Asset Management LP. The Company determined that it should account for this investment as an equity method investment on its condensed consolidated financial statements. For the three and nine months ended September 30, 2016, a loss of $9 and income of $1,721 was recorded on this investment, respectively, and the Company received cash distributions from this entity of $813. The investment was substantially liquidated during 2016 and as of December 31, 2016, the Company’s remaining investment in the entity was approximately $30, which is primarily cash held in escrow for fees and potential contingencies.

16


 

5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements, net consists of the following:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2017

 

2016

 

Office equipment

 

$

9,682

 

$

12,489

 

Furniture and fixtures

 

 

3,412

 

 

3,255

 

Leasehold improvements

 

 

11,293

 

 

8,151

 

Total

 

 

24,387

 

 

23,895

 

Less accumulated depreciation and amortization

 

 

(14,042)

 

 

(15,498)

 

Equipment and leasehold improvements, net

 

$

10,345

 

$

8,397

 

Depreciation and amortization expenses for fixed assets totaled $891 and $817 for the three months ended September 30, 2017 and 2016, respectively, and $2,570 and $2,359 for the nine months ended September 30, 2017 and 2016, respectively.

6. FAIR VALUE MEASUREMENTS

The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1—Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the quoted price.

Level 2—Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3—Pricing inputs are unobservable for the instruments and include situations in which there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company’s management.

The estimated fair values of government securities money markets, U.S. Treasury instruments, and government debt securities as of September 30, 2017 and December 31, 2016 are based on quoted prices for recent trading activity in identical or similar instruments. The Company generally invests in U.S. Treasury instruments with maturities of less than twelve months. See Note 2 for further information on the Company’s fair value hierarchy.

In 2015 the Company received convertible notes as compensation for its services and classified this investment as available-for-sale. The convertible notes did not have readily determinable market values and were categorized accordingly as level 3. The fair value of the convertible notes was recorded at the initial transaction price at which such notes were purchased by third party investors in the capital market transaction on which the Company provided services. In July 2016, the issuer of the convertible notes consummated its initial public offering and the notes converted into common stock of the issuer at a discounted conversion rate equal to the principal value of the notes plus accrued interest. The common stock is classified as available-for-sale and the subsequent measurement of its fair value is recorded based upon the quoted price in its active market. Unrealized changes in fair value are reflected in other comprehensive income in the condensed consolidated financial statements.

17


 

The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

Level 1

    

Level 2

    

Level 3

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Government debt securities (1)

 

$

14,487

 

$

 

$

14,487

 

$

Government securities money market

 

 

53,842

 

 

 

 

53,842

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

Government debt securities (1)

 

 

54,258

 

 

 —

 

 

54,258

 

 

 —

U.S. treasury instruments

 

 

61,864

 

 

61,864

 

 

 —

 

 

Common stock

 

 

244

 

 

244

 

 

 

 

 —

Total financial assets

 

$

184,695

 

$

62,108

 

$

122,587

 

$

 —

(1)

Consists of municipal bonds, agency bonds and agency discount notes.

The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills